Evolution of REITs in the Nigerian real estate market
| DOI | https://doi.org/10.1108/JPIF-09-2020-0098 |
| Published date | 26 February 2021 |
| Date | 26 February 2021 |
| Pages | 38-48 |
| Subject Matter | Property management & built environment,Real estate & property,Property valuation & finance |
| Author | Daniel Ibrahim Dabara |
Evolution of REITs in the Nigerian
real estate market
Daniel Ibrahim Dabara
Department of Estate Management, University of Ibadan, Ibadan, Nigeria
Abstract
Purpose –This study aims to examine the performance of real estate investment trusts (REITs) in emerging
property markets. The paper used the Nigerian REIT (N-REIT) as a case study of an African REIT market, to
provide information for investment decisions.
Design/methodology/approach–Seven years quarterly returns data (from 2013 to 2019) were obtained and
used to analyse the holding period returns, return–risk ratio, coefficient of variation and Sharpe ratios of N-
REIT, All Share Index of stocks (ASI) and the Federal Government Bonds (FGB) in Nigeria.
Findings –The study reveals that N-REIT outperformed stocks but underperformed bonds. Concerning risk,
stocks provided the highest level of risk (7.69), followed by bonds (2.78), while N-REIT provided the lowest risk
(2.7). The Sharpe ratios showed that N-REIT is the second-best performing asset, while bond is the first and
stocks the last on the risk-adjusted basis.
Practical implications –N-REITis the second-largest REIT market in Africa with a market capitalisation of
about US$136m. The N-REIT market has provided investment benefits to institutional and individual
investors such as liquidity, transparency and ease of transaction. This study shows the peculiarity of N-REITs;
this can guide investors in making informed investment decisions.
Originality/value –This study is one of the first to empirically analyse in a comparative context, the risk-
adjusted performance of N-REITs, ASI and FGB. The study will add to the limited research in this field and
equip investors with valuable information for informed investment decisions.
Keywords Emerging economies, Investment, Nigeria, Real estate, REIT regulations, Risk-adjusted
performance
Paper type Research paper
Introduction
Real estate investment trusts (REITs) are increasingly becoming an attractive investment
vehicle in the global real estate market. The advantages it presents, such as ease of
investment, favourable regulatory framework, inflation-hedging capability, superior return–
risk characteristics and a good liquidity source, make it a unique investment asset vehicle
(Dabara and Ogunba, 2020;Marzuki and Newell, 2020). REIT was introduced in the USA in
1960; its acceptability in the global real estate markets has led to its introduction in about 35
countries. Over 800 active REITs operate in these countries with a capitalisation of over
US$2tn (EPRA, 2020;Parker, 2020). The largest global REIT markets are the USA, Japan and
Australia. The emerging REIT markets account for about 5% of the global REIT market
(Marzuki and Newell, 2020). In emerging markets of particularly Africa, it was observed that
its REIT market is lagging behind other regions of the world. The few countries with active
REITs in Africa (Table 1) include South Africa, Nigeria, Ghana, Rwanda, Morocco, Tanzania
and Kenya. Most of these African REITs were introduced recently (less than a decade) with
only one active REIT each, except for South Africa and Nigeria (Kruger-levy and Dauskardt,
2017;EPRA, 2020)
The real estate market in Nigeria
Nigeria has about 200 million people, making it the most populous country in Africa. Its
population impacts the real estate market. Housing and accommodating various activities of
its vast population have stimulated capital inflow into the real estate sector from both
JPIF
40,1
38
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/1463-578X.htm
Received 10 September 2020
Revised 9 February 2021
Accepted 16 February 2021
Journal of Property Investment &
Finance
Vol. 40 No. 1, 2022
pp. 38-48
© Emerald Publishing Limited
1463-578X
DOI 10.1108/JPIF-09-2020-0098
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