The Capital Market and Africa’s Real Estate Sector

The Nigerian capital market represents a small but growing proportion of the nation’s economy. The Nigerian capital market is principally a market for long-term investments where corporate equities and long-term debt securities are issued and traded. It is a market that is regulated by the Securities and Exchange Commission (SEC), which is the apex regulatory body of the Nigerian Capital Market.

The real estate sector is one of the major components of the Nigerian economy, and it is made up of the manufacturing and service industries which includes; housing, agriculture, manufacturing industry, mining infrastructures and services. This sector is one of the sectors that are capable, if properly structured, of fast-tracking economic growth and development coupled with high level of massive employment creation.

The Nigerian stock market is however yet to appreciably perform its role in relation to the financial transformation of the real estate sector, for funding viable and productive investments. All over the world, the growth of the real estate sector has been attributed to the efficiency of the capital market and in order to achieve development in Africa, the stock market should be able to devise effective instruments needed to finance the real estate sector.

The real estate sector essentially relies on the stock market and money market for medium and long-term funds to finance productive activities. The increase in bank lending rate therefore compounds the problem of using the cost of the working capital, thereby increasing the impact of funds on the performance of the sector. With such predicament, the real sector financing can be accelerated through the deepening of the capital market and provide investors with wider options of investment.

REAL ESTATE INVESTMENT TRUSTS (REITs)

The REIT (or Real Estate Investment Trust) structure was first established in 1960 in the United States (US). At the time, banks in the US were finding themselves in the possession of large portfolios of income-producing properties, whose mortgages had not been repaid. In the process of attempting to off-load these properties, the banks found that they were unable to sell them to traditional investors – due to the inaccessible nature of large real estate assets.  The REIT concept was thus developed as a strategy to “unitize” property & permit collective investment by the average investor.

The African REITs market is presently valued at US$29b and is available in four (4) countries (Ghana, Nigeria, South Africa and Kenya). There are only 32 REITs in Africa with South Africa being the largest REIT market having 27 REITs and Nigeria second with three REITs listed.

But in spite of the challenging economic headwinds in Nigeria and other commodity based economy, the capital market (including the NSE) remains one of the main vehicles to promote sustainable economic development and wealth creation. Whilst the Nigerian market may not be as developed as other emerging markets such as Mexico, South Africa and Singapore, this asset class has come to stay.

Today there are about N40b in REITs market cap listed on the NSE and a total of N96b in the Construction/ Real Estate sector of our equity market.

In conclusion, to contribute meaningfully towards the vibrant development of the Nigerian economy, there is the urgent need to adequately fund the real sector. This is because the real sector of the economy forms the main driving force for the country’s Gross Domestic Product (GDP) and large scale employment generation.

It is also imperative that the Nigeria stock market provides such funds which are capital and long term intensive to the financing of the real estate sector. The Real Estate Investment Trust (REIT) should be explored as a viable instrument for financing real sector in Nigeria and Sub-Saharan Africa.

Taking a cue from the South African REIT story,  asset managers should continue to be at the forefront of ongoing initiatives to reform the Real Estate sector. More collaboration and synergy is required between the regulators and market operators to share knowledge and experiences in order to close the knowledge gap, eliminate over regulation as well as increase the ease of doing business in the Real Estate sector.

A platform to create this synergy and collaboration is provided at this year’s edition of Real Estate Unite 2017, slated to hold on the 17th and 18th of October 2017 at Landmark Event Centre, Victoria Island, Lagos. The capital market trend among others will be a key focus area at this year’s summit.

The Real Estate Unite 2017 summit is all encompassing with participation, exhibition and sponsorship opened but not limited to the following; Private equity firms, Asset managers, CoWork and Timeshare operators, Construction companies, Healthcare organizations, Investors and Home Buyers, Property developers, legal practitioners, Retail brand, Hospitality community, interior decor firms, individual attendee, other corporate bodies etc.

To register as an exhibitor, sponsor or delegate, CLICK HERE

For more enquiries contact us on: +234 8099991503, +234 8099991603, +234 8099991803 OR info@realestateunite.com,

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