Establishing real estate investment trusts (REITS) in Zimbabwe
BHEKIMPILO MANGENA AND FUNGAI CHIMWAMUROMBE
OVERVIEW
The real estate sector in Zimbabwe offers a huge investment opportunity given the need to grow both residential, industrial and commercial properties which meet the requirements of a growing population.
The real estate investment trusts (REITS) have emerged as a key special purpose vehicle for individuals and institutional investors alike who want to have a stake in the real estate sector without the burden of being tied to a particular property and the usual regulations governing companies and most business entities in Zimbabwe.
REITS offer convenience to investors coupled with guaranteed high returns. Governed by the Collective Investment Schemes Act (Chapter 24:19) and Statutory Instruments (SI) 268 of 2019, the Commissioner of the Securities and Exchange Commission administers the Act and the regulations. The REITS are also subject to the Income Tax Act (Chapter 23:06) and the Securities and Exchange Commission Act (Chapter 24:25).
KEY STEPS FOR ESTABLISHING REITS
- Structuring and Conceptualising REITS
The first step in establishing Real Estate Investment Trusts (REITS) is to define the investment theme and structure. The stage include considerations for a greenfield projects which seeks to work on a new development and/or a brownfield which securitises existing income earning real estate which is common with pension funds. The type of retail estate investment may be leisure, retail, and office, residential and/or industrial.
- Legal Formation and Registration of REITS
The formation of REITS should comply with the Collective Investment Schemes Act (Chapter 24:19) hereinafter the ‘’Act’’ and the Securities and Exchange Control Act (Chapter 24:25). A trust deed should be done between a licensed fund manager and an independent trustee, both of whom should obtain a licence from the Securities and Exchange Commission of Zimbabwe (SECZ) in pursuant of section 13 of the Act. The application should be done in terms of section 7 of the Act, with prescribed fees together with relevant supporting documents such as prospectus and trust deed
- Capital Mobilisation and Asset Acquisition
To raise funds, the sponsors may opt for an initial public offering (IPO) on the Zimbabwe Stock Exchange (ZSE) or the Victoria Falls Stock Exchange (VFEX) which is common with greenfield projects and/or transfer of real estate assets which usually happens with pension funds. Sponsors may also issue units to investors representing fractional ownership in the trust. The trust should comply with SECZ requirements such as:
o At least 80% of income derived from real estate
o At least 80% of taxable income to be distributed to unit trusts holders annually
o It must have a minimum of 100 shareholders by end of the first year of operation to maintain tax benefits
o 50% of its shares should not be held by five (5) or fewer individuals
- Listing on ZSE OR VFEX and Operationalisation
REITS should be listed on either ZSE or VFEX upon meeting all listing requirements. Various stakeholders such as fund managers, auditors, legal advisors, sponsoring brokers and transfer secretaries are involved at the listing and operationalisation stage. REITS generate income through property rentals and sales with profits made distributed as dividends in line with regulations to unit holders. REITS should maintain proper governance frameworks, ensure regulatory disclosures, be subject to annual audits and trustee oversight.
CONCLUSION: Benefits of Establishing REITS in Zimbabwe
Real Estate Investment Trusts offer numerous benefits to investors such as liquidity as they can trade shares on the stock exchange. Individual investors who cannot manage to invest individually in real estate, may do so easily on a progressive note through targeted acquisition of shares in REITS. High income through dividends is also guaranteed in that REITS benefit from tax exemptions if they meet regulatory requirements. The securitisation of the investment provides security to investors and helps attract foreign direct investment into the country. Overall, REITS provide investment opportunities for both short and long term investors.
Bhekimpilo Mangena is a registered Legal Practitioner, Public Accountant and a Business Consultant at Zenas Consulting (Pvt) Limited and can contacted through bheki@zenasconsulting.co.zw
Fungai Chimwamurombe is a registered legal practitioner and Senior Partner at Chimwamurombe Legal Practice and can be contacted through email fungai@zenaslegalpractice.com.
