Securities regulation to spark real estate investment boom
An investment banker, Mr Randolph Rodrigues, has predicted a bigger boom in the real estate sector when the Securities and Exchange Commission (SEC) issues a regulation to introduce Real Estate Investment Trusts (REITS).
He said REITS was a major driver of investments in both ends of the real estate market as it carries the advantage of being traded in the capital market.
“We will see a greater boom in the market if we put regulations in place to allow for real estate investment trust to be fully marketed. The advantage of a REIT is that it could be traded on the stock market; it’s transferable,” Mr Randolph Rodrigues, who is the Head of Investment Banking at Stanbic Bank, said.
He explained that REITS are the incomes streams of a real estate investment that are packaged and listed on the stock market for investors. This way, it frees capital to the party which invested in the development, which capital can be invested in other subsequent projects.
Promotion of REIFs
The Director-General of the SEC, Dr Adu Anane Antwi, said the commission was currently developing some rules to operationalise Real Estate Investment Funds (REIFs), once the Securities Industry Act is revised.
The bill is currently before Parliament and the expectation is for its passage before the end of the year.
He told the GRPAHIC BUSINESS that the development of REIFs would create a strong link between the capital market and the real estate sector to help solve the housing deficit in the country.
“The REIFs will be closed end funds which will be listed on the Ghana Stock Exchange (GSE),” Dr Antwi said, adding that such funds could become the source for real estate developers to raise long term capital to finance housing projects.
How far with REIFS?
Currently without the REIFS/REITS, investors in real estate and mortgage firms lock up capital in developing houses which are either not purchased in time or the purchasers leave them idle.
With the introduction of the trusts, however, the expected flow of income from the rent or sale of the real estate property could be packaged and listed on the stock market for other secondary investors to patronise.
“So someone originates mortgages, another, the investment in development and another the rental payments which creates an attractive market. So REITS enables investors in real estate to package the stream of rent into a product and list on the stock market so that the funds are freed for fresh investments,” Mr Rodrigues added.
He expressed the optimism that that mechanism would provide some meaningful growth for the real estate going forward.
Sadly, one of the country’s leading mortgage companies for instance has about US$150 million outstanding mortgages. This means there are houses of this value which have not been paid for or occupied, thus tying up the capital.
With availability of REITS, for example, these assets can be floated and such investments will be released for onward investments.
Ironically, although mortgage companies in Ghana are not interested in investing in homes, as opposed to financing their purchase, they are forced to fund both ends of the market, the development and the purchasing – because of the absence of such regulations.
Stanbic Bank’s head of investment banking said although Pension Funds were barred from investing directly in real estate, they could take advantage of REIFS/REITS listed equities to improve their channels of returns and portfolio diversification.
“Insurance firms and other pools of capital will all benefit from REIT,” Mr Rodrigues, who has been doing investment banking in New York and other, developed markets, said.
A decade of real estate rise
There have been more malls built in the last decade than any period in the country’s history. Those that used to exist were smaller malls and stores.
But the story is even more profound in the residential apartments area where private efforts have overtaken the hitherto craze about ‘government affordable housing’ which never materialises. In that space, only quazi government entities such as the Social Security and National Insurance Trust (SSNIT) and NTHC Properties have made some meaningful impressions.
The boom, which is being driven by a stable growth from 2000s, a growing middle class and influx of capital and funds into the real estate market, has seen land owners trading their lands, old structures giving way to modern ones, with capital flying in from neighbouring countries to the market.
“There is a lot of foreign money coming into the country’s real estate market. A significant portion is legitimate, but there is also a meaningful portion that is being pushed from other jurisdictions which is a bit questionable. Over here, purchasing a real estate you don’t have to show anything, especially if you’re paying in cash,” Mr Rodrigues observed.
He, however, dispelled fears that the appetite was only a bubble which would soon burst.
“The development in the real estate front is not a bubble with the sense that in the US, the bubble was largely debt-driven. People get mortgages which are beyond what they could service.”
There were also the derivatives, securitisations which ensured that generally anyone could get a house irrespective of how creditworthy they were. So people were significantly exposed, an issue which does not prevail in the Ghanaian market.
“In Ghana, the prices are rather a cause of inflation. A lot of the acquisitions are equity based so people put down cash for homes, and others are investing in second and third houses,” the head of investment banking said.