Adopt Real Estate Investment Trust model, policy, says Juru

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REAL Estate Institute of Zimbabwe president and Integrated Properties founder and managing consultant Mike Juru this week spoke to The Financial Gazette’s Online Editor Paul Nyakazeya (PN) about the property sector during the first quarter of the year as well as the adoption of a Real Estate Investment Trust.

PN: What were the challenges in the real estate investment market during the first quarter of the year and how can they be solved?
MJ: Real estate is becoming a popular investment as people look for ways to build and secure their wealth. However, traditional real estate investment models have immense barriers to entry. They create an onerous financial burden that makes investing in real estate unfeasible for most of the potential investors. In comparison with regional trends, the Zimbabwe real estate sector is currently hampered by low investment levels especially in the housing sector as evidenced by the widening gap between supply and demand. Local authorities on the other hand are financially incapacitated as they can no longer provide proper and adequate onsite and offsite infrastructure. Government called on a social reform hence the increase of private developers undertaking various projects across the country. However — despite the predomination of Zimbabwe’s Real Estate Market by banks (building societies) and insurance or insurance related firms coupled by a few property focused companies like Pearl, Dawn, Zimre Property Investments and Mash Holdings which are able to mobilise long term capital — the market remains highly concentrated and somehow illiquid and this calls for structures like REITs, which have unlocked massive developments in other countries.
PN: What are REITs?
MJ: The term REIT refers to a Real Estate Investment Trust.  A REIT is a company that owns, operates or finances income producing real estate such as shopping complexes, hotels, holiday resorts, office buildings, industrial properties, apartments, warehouses and mortgage loans. A REIT is typically a collective investment scheme, which enables several investors to pool their savings to invest in real estate in exchange for a range of benefits like income, economies of scale, diversification and liquidity that traditionally is not offered by ordinary real estate investments options currently available. REITs can be either public or private enterprises. Public REITs are open to the general public and are listed on one or more securities exchanges. Private REITs are restricted to parties that management wants as co-owners or perhaps just institutional investors.
PN: Why do you think REITs are ideal in this environment?
MJ: REITs avail a structured way for anyone to invest in portfolios of real estate assets the same way they invest in other options that is through the purchase of individual company stock or through a mutual fund or exchange traded fund
PN: Are there any requirement or conditions needed to set up a REIT?
MJ: Firstly, we need the instrument to guide the operationalisation and give protection to the investors. In other countries for a company to qualify for a REIT status, they must be in compliance with the relevant laws and must:
PN: Can investors expect better returns from REITs than those obtaining on the stock markets under normal circumstances?
MJ: REITs have restrictions on the amount of income they distribute in the form of dividends and frequency of payouts. Unlike the stock market and property unit trust which are not subjected to leverage limits placed on REITS, a company may decide not to declare dividends and reinvest the money in the way they wish. However when it comes to REITs 90 percent of the income must be distributed within that financial year thus guaranteeing investors of stable regular income flows.  Further to that REITs can be tailor made to such an extent that the income from the rentals or interests can be distributed on a monthly basis as it may be deemed fit by the fund.
PN: What is ideal, investing in REITs or directly into property?
MJ: REITS are exempted from Capital Gains Tax in respect of the disposal of the immovable properties. Tax will only be paid when REIT shares are sold. REITs are more liquid compared to directly owning a physical property since they are freely traded on the stock exchange. It is thus my humble opinion that respective authorities should work on formalising the creation and operationalisation of REITs to enable investments in the Real Estate sector.
PN: What are the opportunities presented by REITs and to Zimbabwe?

MJ: It is important to note that REITs are globally recognised and accepted as a standard for property investors as they offer lower investment entry costs, offer a highly liquid method of investing and exiting in real estate, are highly flexible, investors can invest in a range of real estate from commercial office blocks, shopping malls, apartments, housing mortgages and any other income producing real estate. Higher yields can be realised especially in real estate funds. REITs are exempted from Capital Gains Tax in respect of the disposal of immovable properties.
PN: How will the Zimbabwean economy benefit and are there any likely risks?
MJ: The introduction of REITs in Zimbabwe as an internationally recognised investment vehicle will attract the much needed foreign direct investment and provide a new source of capital to the local property market thereby reducing dependence on just banking finance. REITs also have the potential to create, stabilise and improve the creation of a professionally managed residential, commercial and industrial property sectors in Zimbabwe. On risks if mortgage rates fall, the REIT receives diminished interest payments and thus suffers a loss of expected income.
PN: When can we expect them to be introduced into our local markets?
MJ: It is an issue to be accepted by the government through the Ministry of Finance since it has tax implications and also would need the involvement of Zimbabwe Revenue Authority, Securities Exchange Commission and Reserve Bank of Zimbabwe who have a role to play. In view of the government position wherein Zimbabwe is open for business, this surely is a way to confirm that position and with activity triggered on the funding side, the real estate and construction supply chain would generate activity in the construction and related product manufacturing. I can only encourage the government to act fast on the issue.
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