Alternative investments: Real estate investment trusts

What you need to know:

Today, we will examine one of the four alternative investments: Real Estate Investment Trusts (REITS)

Let us assume that, there is a day where, one of our Pension or Social Security Funds or the NHC or Watumishi Housing or Tanzania Building Agency or any other such Institution, decides to change their property development financing model and therefore convert some of their properties into units or shares and then sell these shares publicly to individuals and institutions that have interest on the real estates exposure, and then use these proceeds (funds) obtained by selling shares related to particular properties to build other properties then convert them again into units and sell them to investors, and so on. What will happen? (1) there would be a another layer of efficiently priced source of financing in the real estate space; (2) there would many Tanzanian that will be afforded economic and financial inclusion opportunity not only via financing, but also in ownership in the sector; and (3) there would be another front for our nascent capital markets growth as to provides the platform for long term project financing.

What are the advantages of REITs? (i) Diversification: REITs may invest in many different properties in various geographical locations, bringing investment diversification by property and geography to investor portfolios; (ii) Dividends: REITs are usually required to pay a large percentage of their taxable income as dividends to shareholders who in turn pay income taxes on those dividends; (iii) Liquidity: Publicly traded REITs shares can easily bought and sold; (iv) Performance: Over the past 30 years, publicly traded REITs outperformed the leading stock market indices, including the S&P 500, Dow Jones Industrials, NASDAQ Composite, etc; (v) Transparency: Publicly traded REITs operate under the same rules as other public companies for securities regulatory and financial reporting purposes; and (vi) Growth: Over long holding periods, equity REIT returns have tended to outpace the rate of inflation in particular economies, helping investors hedge the purchasing power of their portfolios. I submit to us that, it is time for our public and private sectors institutions operating in the property space to consider this financing model as a way of economic and financial inclusiveness using this sector too.

Alternative investments: Real estate investment trusts

What you need to know:

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