The Nigerian Real Estate Investment Trusts (REITs) sector remains notably underdeveloped despite the country’s vast potential. With a population exceeding 200 million, a housing shortfall estimated at 28 million units, and a rental market where approximately 80% of residents live in rented homes, the opportunities for REIT growth are substantial yet largely untapped.
REITs represent a specialized investment vehicle that has yet to gain widespread traction among Nigerian investors. It is advisable for potential investors to seek guidance from stockbrokers or fund managers to better understand the advantages of REIT investments. Additionally, REIT managers themselves should take proactive steps to raise public awareness about the benefits, such as consistent dividend payouts and attractive income streams.
Unlike many companies whose profits can fluctuate significantly, REITs are designed to provide steady dividend payments, making them ideal for investors seeking reliable income. “Regulations require REITs to distribute dividends annually, making them a preferred choice for those looking for dependable income streams that are less influenced by stock market volatility,” explains Odunayo Ojo, CEO of UPDC.
Ojo highlights that the appeal of REITs lies in their predictable and stable returns, which attract investors focused on consistent income rather than speculative gains.
Globally, the REIT market has expanded into a multi-trillion-dollar industry, valued at around $4 trillion. Currently, about 44 countries are in the process of establishing legal frameworks to support REITs. However, over 85% of the global REIT asset value is concentrated in just five nations, with the United States alone accounting for nearly 80% of that figure.
Within Africa, South Africa leads the REIT market with a capitalization near $8.5 billion. Nigeria follows with a market size of approximately $600 million, while Kenya holds around $300 million. Other African countries such as Ghana, Morocco, and Egypt are still developing the necessary legislation to launch their own REIT markets.
Despite the promising environment, Nigerian REITs have delivered relatively low returns, averaging about 7%, which pales in comparison to South Africa’s 15% and Kenya’s 9%. This disparity stems from operational challenges and structural inefficiencies that hinder the sector’s expansion.
Currently, only three Nigerian REITs-Union Homes REIT, SFS REIT, and UPDC REIT-have demonstrated resilience. Collectively, they generated rental income of N2.16 billion in 2023, according to the Knight Frank Africa Horizons report, which values Nigeria’s REIT market at $600 million in 2024.
UPDC REIT stands out as one of the largest and most diversified players, managing a portfolio of over 100 properties including office buildings, shopping malls, residential estates, and student accommodations across Lagos and Abuja. Key assets include Victoria Mall Plaza in Lagos, the Kingsway Building in Marina, UAC House in Abuja, and a student hostel at Pan-Atlantic University in Epe.
Financially, UPDC REIT has shown significant improvement, moving from a net loss of N4.48 billion in 2021 to net profits of N1.68 billion in 2022 and N3.8 billion in 2023.
Union Homes REIT, with a portfolio of more than 50 primarily residential and mixed-use properties, maintains a steady but modest presence. Meanwhile, SFS REIT specializes in prime office spaces in Lagos and Abuja, owning just over 10 properties with strong tenant occupancy.
Although these REITs illustrate that Nigerian funds can perform under challenging conditions, the market remains small, undercapitalized, and limited in diversity compared to international and regional counterparts.
One major hurdle has been the previous tax regime, which exposed REITs to double taxation at both the trust and investor levels, significantly reducing returns and deterring large-scale investment. However, recent tax reforms offering exemptions for REITs are expected to alleviate this burden.
Compounding these issues are regulatory overlaps involving the Securities and Exchange Commission, the Federal Inland Revenue Service, and the Nigerian Exchange, which create complex compliance requirements. Additionally, liquidity constraints pose a significant challenge, as the few listed REITs experience low trading volumes, making it difficult for investors to enter or exit positions without substantial discounts.
Institutional investors such as pension funds, insurance companies, and sovereign wealth funds-who are major participants in global REIT markets-tend to avoid Nigerian REITs due to these liquidity risks. Public participation is also limited by low awareness and understanding of REITs.
Furthermore, the broader economic environment complicates matters. Currency depreciation, inflation rates exceeding 20%, and high interest rates make government securities more attractive to investors. Consequently, safer investments like treasury bills and bonds draw capital away from the REIT sector, restricting its growth potential.