SEC to regulate real estate stocks
The high financing costs associated with real estate development and the undersupply of affordable housing has necessitated government’s quest to encourage investment in the sector, through the implementation of the Real Estate Investment Trusts (REIT), Deputy Director-General of Finance, Securities and Exchange Commission (SEC), Paul Ababio, has said.
The REIT, according to the SEC, will be traded like stocks and expected to enable investors to buy and sell shares under the Commission’s regulations.
“The idea is to boost investment in real estate and to implement measures towards the advancement of the housing sector,” Mr. Ababio told the B&FT.
Ghana’s property market has seen exponential growth over the years. However, financing costs for property developments are still high despite the market being undersupplied in the lower segment.
The 2021 population census shows that Ghana has already moved from a more rural population to an urban population with more than half (56.7 percent) of the country’s populace reported to be residing in urban localities.
Housing deficit
There is an increasing deficit of about two million housing units as of 2019 in Ghana, and to bridge the deficit gap, the country needs between 190,000 and 200,000 units of housing to be built at a cost of US$3.4 billion a year over the next decade.
From 2017 through to 2020, the real estate sector contributed GH¢5.7 billion, GH¢6.3 billion, GH¢9 billion and GH¢10.9 billion respectively to GDP, with the sector employing at least 3 percent of the labour force.
The increasing deficit and demand for property and real estate in Ghana, according to Mr. Ababio, offers an investment opportunity to make great returns for both foreign and local investors.
Recognising the challenge and dealing with it, he admitted that the REIT structure has proven to be an effective mechanism for attracting retail and institutional investment capital into global real estate markets.
Due to this, SEC seeks to replicate same in Ghana through the implementation of the Capital Market Master Plan (CMMP), Mr. Ababio noted, adding that, “real estate investments are widely seen as good inflation hedges across the world”.
With the capital market assuming a greater role in financing the ownership and development of commercial real estate, Mr. Ababio said REITs are subject to the regulatory jurisdiction of the SEC, allowing listed real estate development companies to come under the purview of the Commission.
Licensing, establishment and operation of REITs
The criteria for operating as REIT, according to the SEC, include operating as a public company incorporated under the Companies Act, with the said company engaging in the business of investing in income generating activities ina real estate.
Again, at least 75 percent of company’s revenue should be derived from rents, mortgage interest and investment income from indirect property ownership, and at least 75 percent real estate total assets.
Also, the company, shall have at least 80 percent of distributable profit, for each accounting period, being distributed to shareholders.
Furthermore, the company’s leverage ratio must not exceed 40 percent of gross asset value and shall not invest more than 40 percent in a single property.
More importantly, the company shall list on an exchange within three years as a REIT
REITs in Africa
Only six countries have currently registered as REIT operating countries in Africa. The countries are Nigeria with an industry size of US$136 million, Tanzania – US$40 million, Kenya – US$35.5 million, South Africa – US$22.9 million, Ghana – US$14 million, with Rwanda having no available figures.
With Nigeria establishing its REIT as early as 2007 and Tanzania in 2011, Kenya, South Africa, and Rwanda, all registered in 2013 with Ghana doing so as recently as 2019 under the collective investment scheme section 216 of Securities Industry Act (Act 929) REIT guidelines.