Zimbabwe will soon launch Real Estate Investment Trusts (REITs) as a new asset class to allow the players in the insurance and pensions sector to create liquidity, Finance and Economic Development Minister Mthuli Ncube said Monday.
REITs are securities that are publicly traded on stock exchanges the same way as equities. They give investors the option to invest directly in the finished real estate products that are already earning money such as residential and office units, hotels or shopping malls or even infrastructure ventures like roads and power plants.
Speaking at the Insurance and Pension Commission breakfast meeting held in the capital Monday Ncube said he will ensure REITs take off as soon as possible.
“The world over, no economy has achieved socio-economic transformation without a robust insurance and pensions industry. It plays a critical role. But, we notice the sector’s investment is heavily weighted in equities and property market,” Ncube said.
He added: “But, the exposure to the properties sector, which is high, does not create liquidity for the (insurance and pensions) sector. So, we need to do something for the sector as government and IPEC as soon as possible. We need to create liquidity. We need to introduce REITs to allow the sector to create liquidity. We want to make sure REITs take off. I personally going to push for that,” Ncube added.
Apart from creating liquidity, REITs ticks various boxes, in terms of risk management.
REITs play a critical role in providing investors to participate in real estate projects even with a small fund size.
They derive the majority of their income real estate activities, including rents from properties and interest from mortgages. REITs holders get a regular return, which is usually a higher rate of dividends than equities or many fixed income investments.
REITs, usually receive special tax considerations and typically offer investors high dividend yields, as well as a liquid method of investing in real estate, experts told Business Times.
The move to introduce REITs on the Zimbabwe stock market are part of efforts by government to diversify local securities trading through the introduction of a wide variety of investments products, which also include derivatives and Exchange Traded Funds.
The development comes at a time when investment by players in the insurance and pensions sector is skewed towards equities and property, which does not create liquidity.