The Zimbabwe Independent

REITS as an alternativ­e financing option in Zim

- BATANAI MATSIKA Matsika is a corporate finance specialist with Switz View Wealth Management. +263 78 358 4745/ batanaim@switzview.com

ACCORDING to Mckinsey & Co, Africa faces serious infrastruc­ture gaps. Most of Africa lags the rest of the world in coverage of key infrastruc­ture classes, including energy, road and rail transporta­tion, and water infrastruc­ture.

In a country like Zimbabwe, funding infrastruc­ture projects has been a major cause of concern given the limited fiscal space on the part of the government.

We have also noted that rural-to-urban migration in Zimbabwe has led to a significan­t demand for affordable housing. According to the Africa Housing Finance Yearbook (2021), the unaffordab­ility and unavailabi­lity of mortgage finance in Zimbabwe has been the limiting factor for aspiring homebuyers.

e housing backlog in urban areas is estimated at 1,3 million concentrat­ed within the high-density sector.

Our observatio­ns reveal that there is sizeable land available for developmen­t in Zimbabwe’s urban centres.

ere are also several proposed new developmen­ts for shopping malls, hotels, retail and industrial parks, offices and residentia­l complexes predominan­tly promoted by private developers, who appear to be more willing to take the risk.

However, there is need to adopt innovative finance structures that can unlock the intrinsic value of property in Zimbabwe. ere is indeed an opportunit­y to use Real Estate Investment Trusts (REITS) as an alternativ­e financing option for commercial infrastruc­ture projects in Zimbabwe.

A key distinguis­hing factor of REITS is the way they aggregate diverse sources of funding and target them into real estate portfolios that extend beyond the limitation­s of individual projects.

REIT regulation­s and legislatio­n providing for preferenti­al tax treatment and requiring high rates of profit distributi­on constitute additional factors that differenti­ate REITS from other property investment and financing vehicles.

In Zimbabwe, there are two ways of going about listing a REIT. e first option would be for the issuer to use funds raised through an Initial Public Offering (IPO) to acquire existing real estate or develop it from scratch.

Alternativ­ely, the issuer could attach their existing property to the REIT and generate income from it.

Overall, REITS are a powerful instrument that can promote the investment in infrastruc­ture. Several economic models demonstrat­e that infrastruc­ture investment has a positive impact on economic growth and developmen­t.

is suggests that the government and private sector should invest more in this sector as it has the potential to increase the growth rate of the economy.

e private sector investment rate also effects economic growth positively indicating a need for policy measures, which will give incentives to the private investors to invest more through REIT structures.

Internatio­nally, the REIT structure has proved to be an effective mechanism for attracting retail and institutio­nal investment capital into global real estate markets.

While the nascent REIT market in Africa has demonstrat­ed the need for certain enabling conditions to be in place before REITS can thrive, it has also confirmed the huge potential that such a mechanism has for channellin­g investment into African real estate markets.

In addition, the pressure facing the national budget and lack of access to debt markets, mean REITS have become a more important option than ever before.

A coherent framework that systematic­ally identifies REITS as a financing option should bring private sector knowhow and capital to maximise the value for money delivered by infrastruc­ture projects.

e Tigere Property was the first REIT listing in Zimbabwe, and more are expected.

More recently,

atotal of 84,12 million units, worth nearly ZIG 40 million (US$2,97 million), were traded on the Zimbabwe Stock Exchange (ZSE) though as a negotiated trade at 47,50c per unit as the Public Service Commission Pension Fund (PSCPF)TOOK a strategic stake in the

REIT.

e PSCPF, which has long announced that it will target property assets for stable returns, is now the second-largest shareholde­r in the property company after Frontier Real Estate.

In conclusion, REITS stand out as superior property investment vehicles given that they enable investors to hold highly illiquid real estate assets, while simultaneo­usly enjoying the marketabil­ity and liquidity advantages of traditiona­l stock market assets.

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