Abstract
This study appraised the investment option of REITs directly financing real estate developments within the REIT investment guidelines in Nigeria. The focus is to grow the real estate sector of the emerging Nigeria REIT market, especially where there exists a low stock of real estate assets. Asset allocation strategy of the modern portfolio theory anchored on the Markowitz’s efficient frontier model was adopted taking into consideration the REIT regulations in Nigeria. The study found that Nigeria REIT can adapt real estate financing as an option of investment diversification because of the potential return benefit exhibited with an efficient REIT portfolio of 70% real estate acquisition, 20% construction finance and 10% financial deposit asset allocation strategy, yielding a return of 8%, which was 89% higher than the 4.23% maximum return of 100% asset in real estate alone. The study provides an insight into the developing Nigeria REIT market and recommends a review of REIT law to encourage REIT investment into direct construction financing in other to grow property stock in the emerging real estate markets to a sustainable level.
Highlights
The place of effective and efficient financing and its importance in a thriving real estate market for sustainable real estate investment and development cannot be overemphasised
The study in recognition of the low real estate products upon which REIT fund can be directly invested found that Nigeria REIT will have a dual benefit from real estate financing of increased return through the high cost of financing and increased in property stock, if allowed to partake in property development financing
REIT fund will find its way to unauthorised assets or the fund becomes idle in a deposit instrument where banks will deploy such fund to any sector
Summary
The place of effective and efficient financing and its importance in a thriving real estate market for sustainable real estate investment and development cannot be overemphasised. The Pension Act of 2004 is intended to channel long-term funds to the real estate sector through the indirect real estate investment like REIT, but in reality, trillions of Naira that has been accumulated could not find its way into real estate sector as proposed. This is because the Pension Act of 2004 did not provide any guidelines to facilitate the mobilisation of the accumulated pension fund to the real estate sector (Odunsi, 2011)
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