The Zimbabwe Stock Exchange (ZSE) is now ready to accept applications for Real Estate Investment Trust (REITs) to commence trading on the local bourse following the creation of the regulatory framework for the asset class, Business Times can report.
The listing of REITs, which are securities that are publicly traded on stock exchanges the same way as equities, is part of efforts by ZSE to diversify local financial securities traded on the bourse through the introduction of a wide variety of investment products.
REITs give investors the option to invest directly in 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.
It comes after ZSE, in January this year, launched the Old Mutual Top 10 Exchange Traded Fund (ETF).
The ETF tracks the top 10 counters by market capitalisation that are listed on ZSE.
ZSE chief executive Justin Bgoni said bourse was ready to start listing REITs.
“…. We have created the regulatory framework for Real Estate Investment Trusts and we are working to get new listings on that front,” Bgoni told Business Times.
The development comes at a time when investment by players in the insurance and pension sector is skewed towards equities and property, which does not create liquidity.
Government believes REITs would be successful on the local bourse.
This was in recognition of the capabilities of REITs to mobilise resources for new infrastructure projects and also incentivise investors into this alternative high yielding financial instrument.
Recently, Finance and Economic Development Minister, Mthuli Ncube said REITs tick various boxes in terms of risk management apart from creating liquidity.
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 from 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 a number of fixed-income investments.
Ncube also said REITS would receive special tax considerations.
According to a basic survey by the ZSE, there will be an increased uptake in ETF and REITs in the near future.
The change and an improvement in the uptake is expected after the removal of the perceived limitation of pension fund holdings in REITs.
ZSE said the profile of investors in derivatives were likely to be dominated by the more sophisticated investors (institutions and foreign investors) on account of the complexity of the products and the higher risk.
Typically, experts said REITs offer investors high dividend yields, as well as a liquid method of investing in real estate.
The development also comes as ZSE recently introduced the Modified Consumer Staples Index which brought the number of ZSE’s sector indices to eight after the ZSE Financials Index, ZSE Consumer Discretionary Index, ZSE Consumers Staples Index, ZSE Industrials Index, ZSE Information, Communication and Technology Index, ZSE Materials Index, and ZSE Real Estate Index.