The Pension Fund Operators Association of Nigeria has highlighted a significant decline in investments in real estate investment trusts over the years, attributing this trend to the limited availability of REITs in the market.
This observation was made in a five-year analysis of Pension Fund Administrators’ investments in REITs and real estate, shared via PenOp’s official Instagram page on Tuesday.
As defined by the Nigerian Exchange Limited, REITs are entities that use pooled investor capital to acquire and manage income-generating properties or mortgage loans.
These instruments are traded on the NGX similarly to stocks, allowing investors to buy or sell them through stockbrokers like any other share type.
PenOp’s analysis revealed a steep drop in REIT investments, falling from a peak of N239.28bn in 2020 to N20.06bn by the end of 2024.
The lowest point occurred in 2022, when investments dropped to N14.14bn from N153.52bn in 2021. However, there was a modest rebound to N21.04bn in 2023 before the most recent decline in 2024.
PenOp explained, “The gradual drop in investment in REITs is due to the dearth of REITs available in the market. However, active funds have shifted to investing in real estate through private equity funds. Unlike active funds, closed pension funds invest directly in real estate and have invested nearly N300bn in direct real estate in 2024.”
While REIT investments have dwindled, direct investments in real estate have surged. In 2024, direct real estate investments reached N273.06bn, up from N245.34bn in 2023 and significantly higher than the mere N5.13bn recorded five years prior.
Combined investments in the real estate sector by PFAs via REITs and direct investments totaled N293.12bn in 2024, representing a 10.04% increase compared to the N266.38bn recorded in 2023.
PenOp underscored the importance of real estate as an asset class in pension fund portfolios, stating, “They help to hedge against long-term inflation and ensure developers have a source of long-term capital to tap from.”
Historically, pension funds in Nigeria have invested in real estate through either direct investments or REITs.
However, investment regulations prohibit active pension funds from engaging in direct real estate investments, limiting them to REITs.
According to the National Pension Commission’s 2011 guidelines on direct real estate investment, only closed pension fund administrators and those managing defined benefit schemes are permitted to make such investments.
The guidelines define direct real estate investment as purchasing already developed properties or financing the development of properties to generate income for pension funds.
As of Monday, the REITs listed on the NGX included SFS Real Estate Investment Trust, priced at N179.45 per unit; UH Real Estate Investment Trust at N36.60 per unit; and UPDC Real Estate Investment Trust, which had the largest market capitalization of N15.21bn and was priced at N5.70 per unit.
