On Jan 8, 2025 /ennovaterz/ – The Pension Fund Operators Association of Nigeria has revealed that the dearth of real estate investment trusts on the market has seen investment in that segment shrink over the years. This was disclosed in an analysis of the investments of PFAs in REITs and real estate in the past five years shared on its official Instagram page on Tuesday. According to the Nigerian Exchange Limited, REITs are corporations or trusts that use the pooled capital of many investors to purchase and manage income property and/or mortgage loans. REITs are traded on NGX just like stocks; you can buy or sell REITs through your stockbroker as with other types of shares.
The PenOp analysis showed that investment in REITs had declined from a high of N239.28bn in 2020 to N20.06bn at the end of 2024. Within the five years, the lowest point was in 2022, when investment in REITs dropped to N14.14bn from N153.52bn in 2021. It, however, recovered slightly to N21.04bn in 2023 before the latest decline in 2024.
Pension funds and CRE are codependent. CRE that sits inside private equity (PE) fund investment vehicles has become increasingly important to pension funds as many struggle with underfunding problems. These underfunding problems – which emerged in the early 2000s, largely caused by a combination of generous retirement benefit promises and mediocre investment performance – have created incentives for many pension funds to reach for return. They do so by targeting investments with high promised returns, but with less focus on the risks of investment. PE has been the favored alternative investment vehicle for plan sponsors, and real estate has for over 40 years been the favored category of investment within PE.
PenOP said, “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.” As investment dried up in REITs, direct investment in real estate has gone up.
In 2024, investment in real estate stood at N273.06bn, higher than it was in 2023 at N245.34bn.Related News
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Five years earlier, investment in real estate had been merely N5.13bn.
Combined, the investment of PFAs in the real estate sector as of 2024 via REITs and directly was N293.12bn, which is about 10.04 per cent higher than 2023’s investment, which was N266.38bn. PenOp added that real estate investments are a significant asset class on pension fund books as “they help to hedge against long-term inflation and ensure developers have a source of long-term capital to tap from.”
In Nigeria, pension funds have always invested in real estate either through direct investment or through the real estate investment trusts. While the investment regulation prevents active pension funds from investing directly in real estate, they can invest in REITs.
According to the National Pension Commission guidelines on direct real estate investment dated September 2011, only closed pension fund administrators and pension fund administrators that operate defined benefit schemes can engage.
