Real Estate Investment Trusts (REITs) have the potential to stimulate property development by providing a structured and efficient way to pool capital for real estate projects. A REIT is a collective investment vehicle that provides investors with a way to invest in large-scale, income-generating real estate assets, without needing to directly manage, finance or own the properties. By purchasing shares in trusts that manage, own or finance real estate assets, investors get dividends, making REITs a source of income for shareholders. Recently introduced in Rwanda by the Capital Market Authority, the regulator says that the instrument has drawn interest from potential investors. Various players in the real estate sector have expressed interest in the new REITs instrument as a means of enhancing liquidity and attracting investment, Thapelo Tsheole, CEO of CMA told The New Times, adding that investors are keen to explore a more structured approach to real estate investment. ALSO READ: How new financial instruments can boost Rwanda's stock market Rwanda Stock Exchange CEO, Celestin Rwabukumba said, Players in the real estate sector expressed interest even prior to the setting up of the frameworks because they understand the power of investing collectively. Property market For REITs to function effectively, a mature property market is essential, characterised by among other features, stable property values, balanced supply-demand dynamics, low vacancy rates and strong regulatory frameworks that govern real estate transactions and protect the rights of buyers and sellers. Emphasising on this, Paul Rwigamba, Director of projects and property management at Century Real Estate, said, REITs work well in mature property markets as well as where there is lots of supply in real estate. Key issues for the Rwandan market will be the supply of good assets and maturity of the secondary market. According to Siongo Kisoso, Managing Director of BK Capital, quality assets are crucial for REITs to thrive. A REIT would need quality assets within it, assets that are large in value and have bespoke elements such as locations or designs that meet the specific tastes, needs, or preferences of the owner or buyer. Kisoso said. On his part, Tsheole acknowledged that the property market in Rwanda is still in the early stages of maturity. The property market in Rwanda is still in the early stages of maturity needed for REITs to thrive. But since we have regulatory frameworks in place, the existing market transparency mechanism, and the overall economic environment; all those factors will play crucial roles in determining the readiness of the market for these instruments, he said. From the demand side, experts say that there is a strong case for REITs in the Rwandan market. As a capital markets practitioner, our biggest competition is real estate and land. 80 per cent of our non-users, these are people who don't invest in stocks, bonds, and unit trusts, believe real estate and land have better returns, Kisoso said. ALSO READ: Rwanda bourse to allow trading of new asset classes He added that professionally managing property and adding a layer of tax efficiency and exemptions would appetise investors. Capital source Would REITs be an easier or cheaper source of capital for real estate development compared to traditional sources? If structured well, a REIT can be an easy alternative source of capital, as it does not require collateral, for example, as is the case in traditional borrowing, Rwabukumba says. I think this depends on what sector the REITs are raising money for. I feel like there is money in green and affordable residential property, Kefa Angwenyi, a property developer said. For Kisoso, REITs are a good avenue for investors in large developments to access capital. REITs may not necessarily be a vehicle for small to medium developments, but for larger developments or for investors that want to exit, it definitely can be a good instrument, he said. Risks Though REITs are a good investment opportunity for investors looking for a steady income, they have some risks associated with them. REITs aim for high dividend pay-outs and may prioritise short-term income generation at the expense of long-term growth, which can lead to sustainability issues if market conditions change, Tsheole said. He advised investors to conduct thorough due diligence to understand the risks and assess the specific REITs' strategy and management quality before investing. Weighing in on this, Rwabukumba said, There are the traditional risks such as inflation, devaluation of the currency or low up take of the underlying assets that investors should watch out for. Rwanda does not have to reinvent the wheel as far as REITs are concerned. The country can pick lessons from other countries like Kenya, Zambia, and Zimbabwe among others, that have already established the instrument. According to Kisoso, one of the most important lessons to pick is education and awareness for the public. Education is needed and it should not be taken for granted. REITs managers, particularly the ones that start off in the markets, have a big onus to really educate the market on these instruments, Kisoso said. He added that the route to becoming a REIT should be a long journey that perhaps starts with a private REIT and then eventually becomes a listed REIT, which allows for time to educate the public without necessarily being exposed to the forces of demand and supply that are there in the market.
