REIT Financing of Real Estate Development Projects in Nigeria: Why Not?

Abstract

This study appraised the investment option of REITs directly financing real estate developments within the REIT investment guidelines in Nigeria. The focus is to grow the real estate sector of the emerging Nigeria REIT market, especially where there exists a low stock of real estate assets. Asset allocation strategy of the modern portfolio theory anchored on the Markowitz’s efficient frontier model was adopted taking into consideration the REIT regulations in Nigeria. The study found that Nigeria REIT can adapt real estate financing as an option of investment diversification because of the potential return benefit exhibited with an  efficient REIT portfolio of 70% real estate acquisition, 20% construction finance and 10% financial deposit asset allocation strategy, yielding a return of 8%, which was 89% higher than the 4.23% maximum return of 100% asset in real estate alone. The study provides an insight into the developing Nigeria REIT market and recommends a review of REIT law to encourage REIT investment into direct construction financing in other to grow property stock in the emerging real estate markets to a sustainable level.