Real estate funds grow AUM to new-high of N46.16bn in 2019
…ranks 3rd in NAV despite low patronage, industry woes
Having the least investment options among the listed asset classes on the Securities and Exchange Commission (SEC), the real estate funds grew their asset under management (AUM) to a new record of N46.16 billion in 2019.
The asset managed by the real estate funds appreciated by 6.04 percent in 2019 to post a high net asset value (NAV) compared to the 2018 record, SEC data analyzed by BusinessDay shows.
The funds grew by N2.63billion from N43.53 billion in December 2018 to N46.16billion as at the week ended December 27, 2019.
The total asset managed by the real estate funds accounted for 4.59 percent of the mutual funds entire market which has a NAV above the N1trillion threshold. The NAV reported by the real estate funds represented the third highest NAV after money market and fixed income funds.
“Real estate investment trust (REITS) is very liquid, and it is very difficult to see people go to floor to buy REITS, as such one hardly sees any trade in any of the REITS,” Paul Uzuma, MD of Halo Nigeria Capital Limited, said.
According to the Lagos-based analyst, people don’t trade what they do not know and what they are not sure of. Uzuma added that “the real estate funds do not really give adequate financial reporting to update you on what is going on and so activities there are streamlined to may be the issuers.”
Real Estate Fund is an investment vehicle that pools resource together to invest in real estate, thereby allowing individual investors to partake in the benefits of the underlying properties.
“Real Estate Fund is an investment vehicle that can be used to address Nigeria’s housing shortage and encourage economic activity in the real estate sector,” said Ayo Akinwunmi, head of research at FSDH Merchant Bank
According to BusinessDay estimates, Nigeria may require, in monetary terms, between N170trillon and N200trillion to bridge the housing gap if each unit is estimated to cost N10million.
For the past 10 years now, Nigeria’s housing deficit has widened to over 17 million units fueled by lack of patient capital for developers to construct affordable housing for the growing low income earners who account for the larger population of Nigeria.
Real estate developers have continually been in search of viable alternative sources to funding projects in a country where cost of funds has made bank credit inaccessible, unaffordable and unattractive to the sector.
Figures by the National Bureau of Statistics (NBS) for the third quarter of 2019 as analyzed by BusinessDay revealed that the property industry was among the least attractive industries to the country’s commercial banks as it got one of the smallest portion of loans in the review quarter.
Banks’ confidence in the sector waned as credit allocation to real it tumbled to the lowest level at 3.62percent since 2015.
Sectoral credit allocation to real estate shed N121.52 billion year-on-year from N710.20 billion in Q3 2018 to N588.68 billion in the corresponding quarter of 2019.
For industry investors, the low credit to the sector may imply that they would have to concentrate on sourcing for funds outside the shores of the country. The repayment of such funds may come with an interest rate problem as the naira has remained less competitive to the US dollar, for example.
“Finance is the key strategy to everything. The reason the prices of properties are high is because the funding comes at a cost, and all those costs are buried into cost of construction,” Adekunle Abdul, Managing Director, Metro & Castles Homes said.
A further analysis of the data from SEC revealed that UPDC REIT raked the highest share of the real estate funds with an NAV of N33.99 billion, 72 percent of the entire N46.16 billion. This was also higher than the N31.44 billion reported by the fund in corresponding period of 2018.
Managed by both SFS Capital Nigeria Ltd, Union Homes REITS and Skyle Shelter Fund shared the remaining asset in the real estate funds. They both posted a NAV of N9.79 billion and N2.38 billion respectively.
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