REITs market in Nigeria lags behind peers amid growth potential: Here’s why
The Real Estate Investment Trusts (REITs) market in Nigeria is, curiously, lagging behind peers in spite of its growth potential as reflected in the country’s over 200 million population, housing deficit estimated at 28 million units, and an active rental market where 80 percent of the population lives in rented accommodation.
REITs is a specialised investment instrument that many people are not participating in. Investors are encouraged to make enquiries on the REITs through their stockbrokers or the Fund Managers. REITs, on their own, should also do their best to educate the investing public on the benefits of investing in REITs, which include high cash payouts and distributions, among other gains.
The REIT is an investment that is suited to a certain kind of investors. It constantly pays dividends, unlike companies that may suffer some fluctuations in their profit earnings.
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“By regulation, REITs are mandated to pay out dividends every year. So, it is an investment for people who want an annual income, and such income is not usually affected by the volatility of the stock market in terms of distribution,” Odunayo Ojo, CEO, UPDC, explains.
According to him, REITs have returns that are stable and predictable, and that is something that makes investors cherish it. It is suitable for investors who want regular, stable and consistent income distribution.
Over the years, the REITs market has grown into a multi-trillion-dollar industry with an estimated value of $4 trillion. Reports have it that about 44 countries are enacting legislation to create REIT structures. It adds that more than 85 per cent of global REIT asset value is concentrated in just five countries, nearly 80 per cent of which is in the United States.
South Africa dominates Africa’s REIT landscape, with a market capitalisation of approximately $8.5 billion, while Nigeria trails at $600 million, followed by Kenya’s $300 million. Ghana, Morocco, and Egypt are laying legislative groundwork but have yet to see actual REIT listings.
In Nigeria, returns on REITs have remained discouraging. Investors earn only about seven per cent on Nigerian REITs, far below the 15 per cent offered in South Africa and nine per cent in Kenya. This gap reflects both operational inefficiencies and structural bottlenecks holding back the sector’s growth.
So far, only three Nigerian REITs —Union Homes REIT, SFS REIT, and UPDC REIT —have shown some resilience in Nigeria. Together, they recorded a rental income of N2.16 billion in 2023, according to the Knight Frank Africa Horizons report, which valued the Nigerian REITs market at $600 million in 2024.
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UPDC REIT, one of the largest and most diversified, has demonstrated strength and resilience over the years. Ojo revealed the company’s property portfolio spans more than 100 properties, including office towers, shopping centres, residential complexes, and student hostels across Lagos and Abuja.
Its flagship assets include Victoria Mall Plaza in Lagos, the Kingsway Building in Marina, UAC House in Abuja, and a hostel in Pan-Atlantic University, Epe.
Financially, UPDC REIT has turned the corner. After posting a net loss of N4.48 billion in 2021, it swung to net incomes of N1.68 billion in 2022 and N3.8 billion in 2023.
Union Homes REIT, with over 50 properties primarily in residential and mixed-use categories, continues to maintain a steady but modest profile. The SFS REIT is a specialist vehicle focused on prime office assets in Lagos and Abuja, owning just over 10 properties but with strong tenant bases.
However, while these funds demonstrate that Nigerian REITs can perform under difficult circumstances, they remain few, thinly capitalised, and limited in scope compared to their global counterparts and even African peers.
Until recently, with the new tax reform which promises tax exemption for REITs, Nigerian REITs risk double taxation, at both the trust and investor levels which erodes yields and discourages large-scale participation.
Besides regulatory overlaps between the Securities and Exchange Commission, the Federal Inland Revenue Service, and the Nigerian Exchange all of which create compliance headaches, liquidity is also a critical barrier.
The few listed REITs are thinly traded, making it difficult for investors to buy or sell units without steep discounts. Institutional investors such as pension funds, insurers, and sovereign wealth funds, key players in global REIT markets, largely avoid Nigeria’s REITs due to these liquidity risks. Retail participation is also weak because public awareness is low.
On top of these structural problems, the macroeconomic climate adds to the difficulties. Currency depreciation, high inflation, and interest rates north of 20 per cent make government securities more attractive than REITs. In such an environment, investors prefer safer bets like treasury bills and bonds, further starving REITs of much-needed capital.
