- ZSE has created the REITS Association of Zimbabwe to promote the growth of the market
- Currently, ZSE has one REIT listing
- Unpacking the subtext
Harare- The Zimbabwe Stock Exchange (ZSE) has established the Real Estate Investment Trusts (REITs) Association of Zimbabwe (ZIMREIT) with the main objectives of promoting the growth of the REIT market, educate investors about REITs and to advocate for the interests of REITs with regulators and policymakers.
These, are all aimed at improving the overall environment for REITs in the country.
Currently, ZSE boasts one REIT listing, Tigere Property Fund. Seef Developments also contemplated the establishment of a REIT setting its sights on the prospective Zimbabwean Tourism and Hospitality market, with plans to secure US$3 million through a private placement.
A REIT is a type of investment vehicle that owns and manages income-generating real estate properties. REITs are designed to provide investors with a way to invest in real estate without having to directly own and manage properties themselves. Instead, investors can buy shares in a REIT and receive a portion of the income generated by the properties in the REIT's portfolio. REITs are required by law to distribute a significant portion of their income to shareholders in the form of dividends, which makes them an attractive option for investors seeking income.
Investing in REITs is potentially beneficial, as it provide investors with exposure to the real estate asset class and potentially generate attractive risk-adjusted returns. However, there are several factors to consider when investing in REITs.
In Zimbabwe, dividends from REITs are subject to a withholding tax of 10%, which is deducted by the REIT before the dividend is paid to the investor. This tax rate is relatively low compared to some other countries, which can make investing in REITs more attractive for investors seeking income.
However, there are other taxes and fees associated with investing in REITs such as capital gains taxes or transaction fees. The 15% value-added tax (Vat) demanded by the government from companies seeking to list on the bourse is also too high especially for the cash-strapped pension funds. It's important for investors to carefully consider these costs and their impact on their investment returns before investing in REITs.
The broader economic and political environment in Zimbabwe when investing in REITs should also be concidered. Zimbabwe has experienced significant economic and political instability since 2000, with shifts and continuities up to 2023 which can create risks and uncertainties for investors. It's important for investors to carefully evaluate these risks and consider their investment objectives and risk tolerance before investing.
Despite the pros, there are several risks associated with listing REITs in Zimbabwe, particularly given the economic instability, rapid depreciation of the local currency, voodoo economic policies, and insatiable taxations.
One risk is that the value of investments in REITs could be eroded by inflation or currency depreciation. Zimbabwe has experienced high levels of inflation, being in a hyperinflationary period within 5 years, in 2020 and 2023. This reduces the purchasing power of investors' returns. The rapid depreciation of the local currency creates exchange rate risk for investors. This could impact the net asset value of the REITs and potentially lead to losses for investors.
Another risk is that voodoo economic policies and high taxes could discourage investment in REITs. Policies that are not conducive to investment, such as excessive regulation or high taxes, can reduce the attractiveness of REITs as an investment option. These, needs to be addressed by the association.
Besides, the lack of liquidity in the Zimbabwean market could pose a challenge for investors in REITs. REITs are designed to provide investors with a relatively liquid way to invest in real estate, but if there is insufficient trading volume or market depth, investors may find it difficult to buy or sell shares in a timely manner. This could limit the attractiveness of REITs as an investment option for some investors. If there is limited trading volume or market depth, investors may find it difficult to buy or sell shares in a timely manner, which could impact the performance of their investments. It is important for investors to carefully evaluate the risks and consider their investment objectives and risk tolerance before investing in REITs.
However, Zimbabwe's real estate market has significant potential for growth, particularly as the country continues to recover from the economic and political challenges. There is growing demand for affordable housing, modern office and retail space, and industrial properties, which could create opportunities for REITs to invest in new projects. By listing a REIT in Zimbabwe, investors can potentially benefit from the growth potential of Zimbabwe's real estate market.
For instance, REITs can provide pension funds with exposure to the real estate asset class, which can diversify their investment portfolios and potentially generate attractive risk-adjusted returns. Real estate investments can be a good source of long-term income and capital appreciation, which can help pension funds meet their long-term investment objectives.
Therefore, the establishment of the REITs Association of Zimbabwe is likely to be a positive development for the REIT market in the country, as it could help to attract more investors, improve investor education, and ensure that the regulatory framework is supportive of this asset class. However, there are several challenges that will need to be addressed for the market to reach its full potential. As such, it will be important for industry stakeholders to work collaboratively to address these challenges and promote the growth of the REIT market in Zimbabwe.
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