Real estate investment trust in Nigeria has been categorized as one of the lucrative businesses that fascinate a lot of investors for their business because of how profitable it has been.
Investing in real estate guarantees great returns on investment, and is arguably the best way to build and preserve wealth.
Having said this, there are several ways of investing in real estate and each comes with its unique advantages.
However, we will point out how to invest in a real estate investment trust.
Initially, with the blossoming of real estate investment trusts, investors acquired houses and buildings in real estate to take part from scratch, which most times involved a long process.
With the invention of REITs, investing in real estate has been made undemanding, trouble-free, and very easy to access.
You can now buy any real estate shares in the stock market and enjoy the profits to your satisfaction.
Also, the minimum amount to invest, how to make money, and how to buy real estate in Nigeria.
Real Estate Investment Trust in Nigeria
Real Estate Investment Trusts (REITs) are corporations or trusts that use the pooled capital of many investors to purchase and manage income property and/or mortgage loans.
REITs, like other stocks, are traded on the Nigerian Stock Exchange (NSE) and regulated by the SEC.
Investors benefit from capital appreciation and rental income generated by the fund’s real estate assets.
As an investor, you can sell your shares at a profit if the market value rises.
Types of REITs
These are the three principal types of REITs:
1. Equity REITs
Equity REITs purchase, hold and manage commercial and rental properties such as office buildings, shopping centres and apartment buildings.
Though they will finance these properties most times, their primary focus is on profits through acquisition and management.
2. Mortgage REITs
Mortgage REITs do not purchase, own, or manage properties.
They invest in mortgages on real estate properties.
Though these properties serve as collateral for the loans the mortgage REIT invests in, the REIT has no ownership position in the property itself. ​
3. Hybrid REIT
Hybrid REITs combine the investment strategies of equity REITs and mortgage REITs by investing in both properties and mortgages.
Investors choose this option when they are unsure of the type of REIT they want to invest in.
Best REIT in Nigeria
1. UPDC REIT
UPDC Real Estate Investment Trust (REIT) is a close-ended real estate fund listed on the Nigerian Exchange Limited (NGX) and regulated by the Securities and Exchange Commission (SEC).
UPDC REIT is Nigeria’s largest REIT by net asset value and has a diversified portfolio of real estate assets in Lagos and Abuja.
The primary aim of the REIT is to provide unitholders with stable cash distributions, and this is achieved through the distribution of 90% of its net income as dividends.
Stanbic IBTC Asset Management was appointed Fund Managers for the UPDC REIT in May 2021.
Benefits of the UPDC REIT for Investors
- Stable income
- Long-term capital preservation
- Semi-annual distribution of income to unit holders or investors
- Transparency
- Liquidity
- Portfolio diversification
- Ownership of a piece of investment grade real estate
- Tax exemption on income receivable by the REIT
The REIT is currently invested in these asset classes:
- Residential
- Commercial
- Purpose Built Student Accommodation (PBSA)
2. Skye Shelter Fund REITs
Skye Shelter Fund is an alternative investment, which pools funds for investing in income-generating real estate, such as residential homes, shopping malls, offices, warehouses etc. while taking advantage of tax exemptions.
The Skye Shelter Fund is dedicated to the development and/or acquisition of high-quality stock of properties (residential estates, commercial properties, and other investment properties) in select locations across Nigeria.
In addition, Skye Shelter will make opportunistic investments in joint venture developments.
This will be done in partnership with reputable developers on a case-by-case basis as the Trustees and the Fund Managers may deem fit.
Skye Shelter Fund REIT Features
- It invests 75% directly into real estate, which may include: residential apartments, shopping malls, office blocks, hotels, warehouses, and industrial property.
- It invests 25% in real estate related investments, which may include mortgages, real estate backed securities, real estate related equities. This portion includes a 10% allocation to cash for liquidity.
- It pays out 80% of the income, which includes rental income, income from fixed-income investments and income from the sale of properties.
- Skye Shelter distributed to its subscribers for every unit held, the sum of N4.65k in 2008 and proposes N7.00k in 2009.
- Income is exempt from Taxation in Nigeria.
- It is organized as a corporate entity/trust which is quoted on the Nigerian Stock Exchange.
- It has 20,000,000 units of shares at N100.00 per value.
- It is managed and sponsored by Skye Bank Plc.
- Its Trustees are PHB Capital & Trust Limited, and its external real estate adviser is Ubosi Eleh & Co.
Why Invest in a Real Estate Investment Trust in Nigeria?
As a real estate investor, you may have wondered if it’s worth investing in a Real Estate Investment Trust (REIT).
Here are key reasons you should invest in a REIT:
- You can invest in unique properties, such as hotels, residential houses, and many more. And it is less risky than investing in a single property.
- This type of investment allows you to sell your shares whenever you want. However, the prices you sell your shares at will be solely determined by the market.
- It offers high returns compared to other investment vehicles. Most REITs offer yields of 10% or more.
- Unlike stocks and bonds, the value of a REIT rarely fluctuates as much as these other investments do. This makes them a more stable option.
- Investing in REITs in Nigeria is quite simple; all you must do is look at the publicly available data to pick what to buy at your convenience. A brokerage firm can then acquire REITs on your behalf.
Steps to Investing in Real Estate Investment Trust in Nigeria
1. Know the Law of Nigeria Property
As a Nigerian, you may own a property.
However, the 1978 Land Use Act grants state governments control over land that is located inside their borders.
After a lengthy bureaucratic procedure, they make it available to you.
After that, you’ll get a certificate of occupancy so you can start using the land, like selling it or developing it.
Your rights may also be restricted if you live outside of your place of origin, which is very debatable and may lead to ethnic strife.
2. Get the Right Details
Be careful not to enter deals with untrustworthy people.
Talk to industry experts and a lawyer and make sure you get everything ironed out right from the federal government requirements down to the owner’s issues.
It is another known fact that property scammers run in our big cities, pretending to sell houses whose owners are away, complete with fake title deeds.
Get the advice of relevant professionals, such as surveyors, who will check out the property and advise you accordingly.
When you get down to construction, enlist the services of architects and service engineers.
Do not do things hurriedly, only to incur unnecessary costs.
If you are a foreign investor at the corporate level, the best thing is normally to partner with locals.
3. Know Where and How to Get Finance for your investment
As a registered property developer, you can always access loans to help finance and support your investments.
Also, note that all applications go to the federal mortgage bank of Nigeria or any other licensed institution it puts in charge.
If a property developer spots a piece of land, that is outstanding but is short of funds to acquire it.
In a situation like this, the developer can simply request and get a loan to develop the property.
It is easier for a developer to obtain a loan when they have a track record of successful development.
4. Advertise Your Products Online
After investing in a real estate investment trust in Nigeria, the next thing is not to business to promote itself.
Today, you cannot afford to ignore the Internet.
The internet is one of the more cost-effective ways to drive visitors to your business after it is up and running, whether it is through having a website or keeping up a social media presence.
Online marketing may be your best option if you want to draw buyers or vendors.
The Nigerian real estate market does not differ from other real estate markets in that mistakes can be made; thus, one must learn patience and good decision-making.
Keep in mind that Nigeria is a growing market with enormous potential.
Requirements for Real Estate Investment Trust Loan in Nigeria
When talking about how to invest in REITs in Nigeria, getting enough capital to run your business is more important.
You can take a loan from the bank to finance your investment if you meet the loan requirements.
Here are the eligibility requirements for a Real Estate Investment Trust loan in Nigeria:
- The proposed estate must have a good title to purchase the housing unit.
- The Bank finances infrastructural facilities (Up to 70% for a private developer), while housing corporations and government-owned development projects are to provide 100% infrastructure.
- The developer is expected to submit a financial plan budget for the housing estate.
- You must provide a financial projection to suit the proposed financial arrangement for the project.
- There must be a commitment from buyers of the housing units.
- A named accredited primary mortgage institution is to be identified to facilitate the project properties: the buyer must be a contributor to the National Housing Fund (NHF).
- The PML associate must substantiate the relationship and forward a marketing plan for the disposal of the housing units.
List of Documents Required by The Bank
You must also have:
- Photocopy of Article of Memorandum of Association of the company.
- Certificate of incorporation.
- Evidence of registration with the National Housing Fund as an employee and up-to-date remittance of employees.
- Viable facility management for the proposed estate and program for its sustainability.
Document Required as an Estate Developer
If you are an estate developer, you need these documents to secure a good loan for your real estate investment trust in Nigeria.
- List of shareholding/profile of the board of directors and others.
- List of board and director (names, positions, and professions in table form).
- Photocopy of the registered title document on the land for the proposed project.
- Feasibility and viability development report.
- Project work program/plan.
Requirements to Invest in Real Estate Investment Trust in Nigeria
You can start small with a little of cash.
If you’re in it for the long term, consider one REIT that offers a dividend reinvestment plan (DRIP).
Moving up the Cost Ladder: REIGs—$5,000 to $50,000.
For investors seeking to own physical real estate instead of shares in a company, a real estate investment group (REIG) or private partnership may be for you.
However, you will need:
1. A Lawyer’s Guide
Your lawyer guides you on the applicable property title documents to be demanded from the seller or realtor.
Your lawyer helps in reviewing the seller’s title and does background research on the property to be sold.
The guidance from your lawyer also comes in handy while doing a land registry search and he or she can investigate the property’s title properly.
Once the property has been confirmed to be authentic, a contract of sale will be signed by both the seller and buyer and payments can be made based on the agreement.
2. Deed of Assignment
The next step after payment has been made will be to draft and sign a deed of assignment or conveyance.
While the deed of conveyance means transferring the legal title of the property’s ownership from one individual to another as a mortgage.
Once that is done, the buyer may register the property’s title with the appropriate land registration.
3. The Certificate of Occupancy (C of O)
While C of O is not always required for all properties, it is majorly for individuals who had land properties in Nigeria before the Land Use Act of 1978 was enacted.
The C of O confirms the legal ownership of any land or property in Nigeria, regardless of its usage.
It is usually given to a landowner by the government as proof of the owner’s interest in the property, provided that such interest is following the applicable laws.
4. Survey Plan
An approved survey plan falls in the category of documents required for anyone looking to buy properties in Nigeria.
It is a document that measures the boundary of a parcel of land to give an accurate measurement and description of that land.
5. Letter of Administration
Letters of Administration are granted by a Surrogate Court or probate registry to officially appoint an administrator to take control of and dispose of the estate of a deceased person.
Documents owned by a deceased person regarding his or her property before death are no longer valid to convey title to the property after his or her death.
Conclusion
The real estate sector is currently booming in Nigeria and people are making millions in it, irrespective of the economic downturn, it can be seen as a real money-spinner.
As an investor, REITs serve as an avenue for you to engage in the real estate market without having to purchase and manage properties yourself.
These investment trusts combine investor funds to finance real estate projects, which enable its investors to own, and manage a portfolio of properties which could include housing units, data centers, hospitals, hotels, office buildings, warehouses, and associated real estate assets.
When you invest in a real estate investment trust in Nigeria, you become a part of a larger group of people who own income-producing real estate, which is everyone’s dream.
To this effect, everything you need to know and understand about how to invest in REITs in Nigeria has been carefully analyzed.
We hope you find the article useful.
