REIT, A Viable Investment Option as Inflation Pushes Harder

ESV Lucky Ndimele,

According to available statistics, the Nigerian inflation rate is put at 24.08% as of July, 20233.

Economic and investment analysts said is the highest inflation figure since September 2005 when a 23.7% inflation rate was recorded. This inflationary acceleration was attributed to a number of factors, and primarily among them was the poor management of the economy as a result of unfriendly macroeconomic policies like the removal of the fuel subsidy, and the adoption of the single exchange rate.

In the midst of the high inflationary pressures and the fragile state of the Nigerian economy, many investors are at crossroads on the investment direction to take and commit their monies for returns. The Nigerian economy is currently experiencing very difficult times, as a matter of fact, all macrocosmic indicators are in the reds.  And with this development, no wise person will invest in a sector or in an investment that will be eroded by inflation in the near future.

Without much argument, the real estate sector is one of the best places to invest in a period of economic shocks as being witnessed in Nigeria today. And one of the best ways to drive this investment is through REIT Real Estate Investment Trust. Simply defined, REIT is a company or an organization that owns, finances and manages income generated from real estate products and services. REITs are managed by real estate and investment professionals. In most cases, their clients are majorly institutional investors from the government and the organized private sector.  When inflationary pressure remains for a long period of time and disposable incomes are badly eroded, one of the surest ways to retain the value of capital is through REIT portfolios, and this is one of the reasons why REITs are highly patronized by institutional investors.

In many advanced economies of the world, most REITs are owned by leading brands and quoted in the stock exchange market. Over the years, this is a development that has given many REITs a push when it comes to investors confidence.  Some REITs are specialized companies, offering property investment services in a select sector of the real estate ecosystem.

Due to the nature of the real estate industry, REITs are always ahead of inflationary trends since real estate products and services keep appreciating in line with the economic trajectories. In most economies of the world, financial institutions have a REIT unit that caters to all real estate lending, investment, and other allied services.

Like other financial and mortgage institutions that cater for real estate investments, REITs are highly regulated by the relevant agencies of government because of the pivotal they play in the real estate sector, and the overall economic growth and development.  The ability of these specialized real estate financial institutions (REITs) to manage income-generating real estate, distribute profit to investors, and render real-time values to the stakeholders is what makes it a viable investment option.

On its role in economic growth and development, REITs play catalytic roles in the mobilization and distribution of capital. They play the function of financial intermediation by mobilizing funds from the surplus unit of the economy and directing it to the deficit unit of the economy.  This function is made possible due to the high level of liquidity available to them.

In an inflationary period like this, REITs are one of the best places for forward-looking investors to commit their money and have an investment that has both an edge and a hedge over inflation.

ESV Lucky Ndimele, a registered Estate Surveyor and Valuer, and the principal partner at Lucky Ndimele & Company, a leading Nigerian firm of Estate Surveyor and Valuers.