Real Estate Investment Trusts (REITs) offer an innovative way to invest in real estate without the challenges of direct property ownership. They allow individuals to buy shares in income-generating properties, exposing them to the real estate sector through the stock market. In Nigeria, REITs are listed on the Nigerian Exchange Group (NGX), making them accessible to retail and institutional investors.

Nigeria’s REIT market started in 2007 with the introduction of Union Homes REIT. Over the years, it has expanded to include two other REITs: Skye Shelter Fund and UPDC REIT. Despite its limited size, the market presents significant potential for growth due to the country’s massive real estate demands and housing deficit, which exceeds 20 million units.

REITs are financial instruments that pool resources from multiple investors to invest in real estate projects. These projects may include residential buildings, shopping malls, office spaces, or warehouses. Investors earn returns through dividends paid from rental income or property sales profits.

The REIT market includes three main types:

Equity REITs: These REITs invest directly in properties and generate income from rents or sales. Union Homes REIT is an example.

Mortgage REITs: These REITs focus on property financing by issuing loans or investing in mortgage-backed securities. Investors earn interest income.

Hybrid REITs: Hybrid REITs combine the features of equity and mortgage REITs to offer diversified returns. However, hybrid REITs have yet to be created in Nigeria.

Market Size and Key Players

Nigeria’s REIT market is still tiny, with only three listed REITs:

Union Homes REIT: Focuses on residential properties and has consistently provided dividend yields of 7–10% annually.

UPDC REIT: Invests in commercial and mixed-use properties and is one of the largest by asset value.

Skye Shelter Fund: Targets commercial properties like office complexes and shopping centers.

Together, these REITs have a market capitalization of about 50 billion Naira, representing only 0.4% of the Nigerian Exchange Group’s total market.

Growth Potential

Nigeria’s housing shortage and the rapid urbanization of cities like Lagos and Abuja create significant demand for residential and commercial properties. Analysts predict that the REIT market will grow as awareness increases and more REITs are listed.

Comparison with Other Markets

South Africa is a leader in Africa’s REIT space, with over 30 listed REITs valued at $15 billion. Nigeria’s smaller size highlights its potential for development.

Reliable Income Streams
REITs are required to distribute a significant portion of their earnings as dividends. For instance, Union Homes REIT has consistently paid dividends to shareholders, making it an attractive option for income-focused investors.

Diversification
Investing in REITs allows individuals to diversify their portfolios across multiple real estate sectors, reducing the risks of investing in a single property or project.

Liquidity and Accessibility
Unlike traditional real estate investments, REIT shares can be bought and sold on the NGX, offering liquidity. This feature is essential in markets like Nigeria, where property transactions can be lengthy and complex.

Tax Efficiency
REITs in Nigeria enjoy tax exemptions, particularly on income distributed as dividends. This makes them a tax-efficient option compared to direct property investments.

Limited Market Depth
With only three listed REITs, investors have limited options. This lack of variety can lead to concentration risk.

Regulatory and Operational Hurdles
The legal and regulatory framework for REITs in Nigeria is still evolving. Compliance requirements can be cumbersome, and inconsistent policies may deter investors.

Low Public Awareness
Many Nigerians are unaware of REITs as an investment vehicle. This low awareness limits participation and restricts the market’s growth potential.

Macroeconomic Volatility
Nigeria’s economy faces challenges such as inflation, currency fluctuations, and interest rate hikes. These factors can affect REIT valuations and investor confidence.

Open a Brokerage Account
To invest in REITs, you should open an account with a licensed stockbroker registered with the NGX. Many brokers now offer online platforms for easy trading.

Research and Analyze
Before investing, research the available REITs. For instance, UPDC REIT’s annual report provides detailed insights into occupancy rates, rental income, and operating expenses.

Diversify Your Portfolio
Avoid concentrating your investment in a single REIT. Spread your funds across multiple options to reduce risks.

Monitor Your Investment
Stay updated on market developments and regularly track the performance of your chosen REITs. This will help you decide whether to buy, hold, or sell.

Urbanization and Housing Demand
Nigeria’s urban population grows at an annual rate of 4.3%, fueling the demand for housing and commercial properties. This trend supports the long-term growth of the REIT market.

Emerging Sectors
Industrial and logistics real estate are gaining traction in Nigeria, offering opportunities for future REITs. These sectors are expected to grow as e-commerce and infrastructure projects expand.

Improved Regulations
The Securities and Exchange Commission (SEC) ‘s efforts to streamline REIT regulations and increase transparency will likely attract more investors.

Potential for More Listings
Experts believe more REITs will emerge in Nigeria as developers and institutional investors recognize the benefits of this structure. This will increase market diversity and attract global investors.

Nigeria’s REIT market is a young but promising sector in the country’s capital markets. While challenges like limited public awareness and market size exist, the growing demand for real estate and government support provides a solid foundation for expansion.

Investors willing to explore REITs in Nigeria can benefit from a steady income, diversification, and long-term growth potential. However, understanding the market and staying informed is crucial for maximizing returns. With its vast untapped potential, the Nigerian REIT market is an opportunity waiting to be explored.