ZIMBABWE Stock Exchange (ZSE) chief executive officer Justin Bgoni has revealed that pension funds are not investing in real estate investment trusts (REITs), despite the asset class offering diversified investment opportunities.
REITs first made a name in the market after the Tigere Property Fund REIT was listed on the ZSE in November 2022.
There are two REITs listed on the local bourse, which are, Revitus Property Opportunities and the Tigere REIT. The two REITs have a combined market capitalisation of over ZiG1,23 billion.
Speaking at ZimReal Property Investment Forum’s annual conference held in Harare on Wednesday, Bgoni questioned why the pension funds were not investing in REITs.
“Why don’t pension funds invest in REITs despite their diversification and expertise in enhancing investor’s portfolios?”
In response to Bgoni’s query, Electricity Industry Pension Fund project manager Lloyd Ngoro revealed during a panel discussion that pension funds did not invest in REITs out of caution.
“Pension funds often exhibit caution when it comes to investing in real estate investment trusts. The variable taxation arrangements (VTA) create complexities in how income generated from REIT investments is taxed, which leads to unfavourable tax implications for pension funds,” he said.
“Consequently, the intricacies of VTA and its impact on tax liabilities are significant factors influencing pension funds’ investment strategies, leading them to avoid REITs in favour of more tax-efficient investment options.”
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Pension funds fear the income generated may be subject to different tax treatments depending on the jurisdiction and the specific tax regulations in place.
However, Terrace Africa group legal manager Christabel Shava said investing in REITs offered a multitude of advantages that could significantly enhance an investor’s portfolio.
Terrace Africa are the managers of the Tigere REIT.
“One of the primary benefits is that REITs leverage professional expertise in real estate management, allowing investors to tap into the knowledge and experience of seasoned professionals who make informed decisions about property acquisitions and management,” Shava said.
“This expertise can lead to better investment outcomes compared to individual property investments.”
REITs typically invest in a variety of property types, such as residential, commercial and industrial real estate, which helps spread risk across different sectors.
This diversification can mitigate the impact of poor performance in any single property type or market segment.
