Real Estate Investment Trust (REIT) is a distinct investment vehicle that was created by the US Congress to simplify the ownership of real estate to the extent that ordinary individual investors can have the same benefits as the traditional real-estate owners (high-net-worth individuals and large financial institutions). Established in the ‘60s by US Congress, Real Estate Investment Trusts had its own setbacks in the early stages of its formation, especially in the 1970’s and 1980’s when property markets experienced immense downturn. However, REITs gain the necessary recognition in the 1990’s when Kimco decided to go global through the IPO. The launch of the IPO aided REITs to gain the attention and investment from the institutional investors. This recognition and the formation of the UPREITs propelled the growth of REITs.
The contribution of REITs to US, Japan and UK’s property market is enormous. Dividend payment constituting 90% or more of the income and corporate tax exemption means the special vehicle is appreciated by individual, institutional and foreign investors. Developing countries are faced with enormous challenges in the property market, naturally thwarting the fundamental requirements needed to implement REITs. Transparency, directives, affordability and reliable data availability that exist in the US, UK, Australia and others markets like Japan have fundamentally propelled growth of REITs in such market.
REITs come in the form of mortgage, equity or hybrid, allowing investors to invest based on both their risk level and investment horizon. REITs offer special benefits that direct real estate investment does not offer. Such benefits span from diversification to liquidity. Though long-term analysis of REITs return indicates that it behaves and correlates with stocks, investors gets to enjoy the same benefit as direct real estate investors in the long-run. Fund managers, insurance companies and banking institutions can invest in REITs without the illiquidity issue that is associated with direct property investment.
The collective Scheme launched by HFC Bank (now Republic Bank) in 1995 is Ghana’s version of REITs. The growth of HFC REITs has not been smooth, arguably caused by challenges in land administration and flaws in the very fundamentals underpinning our economy. The REIT market across Sub-Saharan Africa (SSA) is generally embryonic. Although the Securities and Exchange Commission of Ghana has come out with a draft, Ghana’s property market is yet to witness the uptake and impact of the REITs in the sector’s growth.
Source: Isaac Ewusie Jnr
(MSc. Real Estate Finance, University of Reading, UK)
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