East African Real Estate Investment Trust Seminar

The Centre for Affordable Housing Finance in Africa (CAHF) in partnership with the African Union for Housing Finance (AUHF) and co-sponsored by the Development Bank of Rwanda hosted a seminar on residential Real Estate Investment Trusts and their potential to increase investment into and access to affordable housing in Africa. This took place in Kigali, Rwanda on Wednesday the 10th May 2017 at the Marriot hotel.

This seminar arose from CAHFs recently commissioned and published study on residential Real Estate Investment Trusts in Africa and their potential to increase investment in and access to affordable housing. The full report can be found here. The research incorporates a background of the concept and international best practice of residential REITs, African case studies on how the concept has been applied in Ghana, Nigeria, South Africa, Tanzania, Kenya, Rwanda and Morocco as well as an analysis of the experiences of the implementation of these cases and lessons learnt.

CAHF commissioned the study as part of its wider effort to encourage and stimulate the financial sector to develop and explore innovative products that explicitly target affordable housing. The cases outlined in the research provide an illustration of how REITs are implemented across the continent with key challenges identified. CAHF anticipates the study will increase awareness of the concept as an investment choice throughout the continent.

This seminar was intended to cover East Africa with the aim of enhancing knowledge and capacity building on the concept as well as to engage various stakeholders across the East African region. Stakeholders from Tanzania and Uganda, in addition to stakeholders from Rwanda attended and engaged.

There were 64 attendees which included students from a local university, representatives from Uganda, Botswana and Tanzania and representatives from Rwanda. These included; Housing Finance Uganda, Watumishi Housing Company. Tanzania Mortgage Refinance Company, Botswana Housing Corporation, Ministry of Infrastructure, Development Bank of Rwanda, the Rwanda World Bank country office, Rwanda Social Securities Board, Rwanda Stock Exchange, Rwanda Housing Authority, Rwanda National Investment Trust, JUMIA Group Rwanda, Capital Markets Authority and  Knight Frank Rwanda among others.

The seminar began with Kecia Rust from CAHF speaking on the Development of Housing Finance Markets in East Africa, contextualising the REIT research in the East African context. Dr. Livingstone of Development Bank of Rwanda welcomed all with an opening address as well which highlighted the need for investment in affordable housing in Rwanda and sub-Saharan Africa in general. CEO, Oscar Mgaya from the Tanzania Mortgage Refinance Company, Chairman of the African Union for Housing Finance (AUHF) board also gave the attendees a warm welcome and an overview of the AUHF.

Nadia Kruger-Levy of Rebel Group S.A who was responsible for carrying out the research commissioned by CAHF, delivered two presentations of the research carried out. The first presentation was on the REIT concept as it is applied globally. This included defining characteristics and investor benefits of REITs in general and discussing residential property as an investment assets in the context of REITs. In addition, the experience of developed markets with REITs in affordable housing was described ending with an overview of the African REIT market. This followed on to a second presentation at the end of the day which outlines the analysis of the African case studies researched. This discussed three REIT cases, specifically the HFC Ghana case, Union Home Nigeria and Indluplace properties South Africa. It defined the critical enabling conditions for REITs to thrive,  challenges facing the development of residential REITs in Africa as well as the approaches taken to increasing the financial viability of affordable housing REITs in Africa.

Dr. Fred Msemwa from the Watumishi Housing Company (WHC) REIT delivered a presentation on the WHC REIT currently in operation in Tanzania. The purpose was to share the experience with other East African stakeholders interested in the instrument. The presentation included details in the REIT structure, how it was established, how the fund is managed, the type of REIT, size and key investments of the REIT and key lessons learnt and challenges experienced.

There was much interest from the attendees and key questions arose from the discussions. In addition, experiences were shared.  Housing Finance Uganda shared their experience in terms of regulations with the minimum investment amount for Uganda REITs being US$ 40 000 as well as restrictions on who can invest.

  • A key concern raised was how to achieve balance between the objectives of targeting affordable housing and the profit seeking motive of REITs. Related to this, the question was raised as to how does one implement affordable housing REITs without subsidies. A key concern raised which is of interest to REIT investors is the illiquidity associated with residential real estate.    Critical mass was noted as important to create liquidity in a REIT but it was also noted that REITs can create critical mass. The question was then raised, how can the state use REITs to create critical mass?
  • The effect of gearing or borrowing on REIT performance was highlighted as in some jurisdictions, REIT regulations come with gearing restrictions.
  • It was highlighted that while Development REITs are particularly relevant in the African context, Income REITs are also important as they provide an exit for construction investors.
  • The Rwandan government is in the process of developing a REIT as a tool to reduce the cost of finance however, there is still a lot of regulatory work that needs to be done. There are currently three projects in the pipeline to build 4 500 housing units.
  • One of the questions raised was why would an institutional investor invest in a REIT when they could do the development themselves. It was noted that the REIT structure enables small investors to invest alongside pension funds to diversify investment. Hence, legislation for a REIT is very important.

Overall, participants in this seminar reiterated the need for affordable housing to be delivered in the African context based on market segmentation and framed as a major asset class. Participants felt that REITs could assist in this regard by increasing investment into affordable housing. In order to do this, there was general consensus that government support is imperative to creating an enabling environment for REITs and private investment to thrive.

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