FINANCE, Economic Development, and Investment Promotion minister Mthuli Ncube has encouraged pension funds to venture into real estate investment trusts (REITs) to hedge investments against inflation.
This comes as the local currency has depreciated by over 700% year to date, to US$1: ZWL$5 917,1743, which has left the economy in an inflationary position.
In the past, investing at the Zimbabwe Stock Exchange acted as a hedge against such depreciation. However, the introduction of a capital gains tax of 4% on stocks sold within 180 days have made the investment option unattractive.
In an interview with journalists on Monday, Ncube said REITs allowed a wider investing public to acquire a portion of the real estate and enjoy the benefits accruing from them.
“Real estate is generally considered a key part of any diversified portfolio because of its inflation-hedging characteristics,” he said, at the official listing of Revitus REIT.
“But the limitation for most pension funds investing in this asset class has always been lack of divisibility when one wants to invest and lack of liquidity if one wishes to exit. REITs solve both problems and, in the process, allow the wider investing public to acquire a portion of the real estate and enjoy the benefits accruing from them.”
Pension funds are awash with cash looking for an investment home.
REITs are investment securities that let you put money into properties that provide revenue, most typically commercial buildings.
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They allow one to invest in real estate without personally owning or managing properties.
REITs that are publicly listed and trade on stock markets have a lot of tax incentives and pay dividends to investors through dividends.
Ncube said REITs could revive the culture of savings and encourage capital formation and economic growth.
“REITs generally are an inclusive instrument in the sense that one takes a hard infrastructure, a building then first securitises it and then slices it up into small bits which are affordable to ordinary citizens as investment instruments, as savings instruments. That is inclusive,” he said.
“It’s also inclusive in the sense that it’s not just about securitising buildings, it’s about exposure to the real estate market in the first place, where an investor would be unable to do so because buildings are expensive. So, it’s a critical instrument for inclusion, a critical instrument for increasing exposure to the real estate sector for all our citizens.”
Ncube said as the economy continued to stabilise with the declining inflation levels witnessed in the past six months, it was essential to revive a savings culture.
“Experiences from elsewhere, especially East Asian countries such as China and Singapore, have shown that there is a strong positive correlation between high levels of savings, capital formation, and economic growth,” Ncube said.
“And this has been the missing link in our economy. REITS are the way to go.”
He said investors should not worry about their money invested in REITs, in Zimbabwe, as they were being governed by the Securities Exchange Commission of Zimbabwe (SECZ), through the Investor Protection Fund.
REITs are regulated by SECZ under the Securities and Exchange Act (Chapter 24:25), Collective Investment Schemes Act (Chapter 24:19), Collective Investment Schemes (Internal Schemes) Regulations, 1998, Collective Investment Schemes (Internal Schemes) (Amendment) Regulations 2019 No 5 and the Income Tax Act (Chapter 23:06).
“But also, we do have penalties if people deviate. We are the government; we are the ultimate regulator. So, investors should feel very happy that their resources, their investments are well looked after and they are safe,” Ncube said.
There are currently five REITs yet to be licensed and approved.
