REITs or Real Estate Investment Trusts are companies listed or registered with a stock exchange authority such as the Securities Exchange Commission of Zimbabwe (SECZ). There are some key differences separating REITs from other exchange-listed companies. Before going into that, however, I find it necessary to visit the mission behind the existence of REITs as this will make it easier to understand the innovative structure.
Real Estate Investment Trusts were created by congress (USA) in 1960 with the mission of making the gains of the illiquid real property market accessible to the public. Simply put, the mission of REITs was to provide the regular average citizen access to a high returns asset class without the headaches that come with managing and maintaining the asset. REITs in the modern day also expose investors to the real estate industry in a liquid and less risk-fraught avenue. Right, so we now know the fundamental promise REITs make. How do they operate?

How REITs operate
A REIT has in its portfolio, several properties be they commercial or residential. As a classification requirement, REITs are required to have at least 80% of their gross income coming in from real estate. This income could be in the form of rent, management fees, property sales and other incomes directly associated with the trust’s interaction with the property portfolio. Buying a share/unit in a REIT allows you to participate in the profit or losses the trust incurs as it manages this portfolio. By regulation, a REIT is required to distribute the majority of its earnings to its shareholders. Zimbabwe’s REIT regulation stipulates that at least 80% of gross taxable income should be distributed to its shareholders.
REITs also have the upside when it comes to taxes on investor actions. Dividends attract a meagre 1% capital gains withholding tax when securities are disposed of and a withholding tax of 10% on dividends earned. This trumps having conveyancing fees, capital gains and other hidden fees that often come with disposing of real property in your portfolio. So, while you may be letting go of some profit within the property investment cycle you gain your time while your deployed capital still earns a return.
The REIT benefits
A key benefit of REITs particularly those with large residential holdings is that they are less volatile to market changes. While residential units are less valuable than commercial holdings per square metre they tend to fluctuate less. This is because they directly cater for a basic human need and will take a smaller blow in terms of occupancy rates during downtimes. In fact, REITS specialising in residential and industrial spaces experienced a steady rise in market value after the initial covid shock wore off (Nareit).
REITs offer competitive returns when compared to other exchange-listed entities. Nareit found that for the twelve months ended in the first quarter of 2022, REITs outperformed the S&P 500 by 7.9 percentage points on an annualised basis with a bullish inflation rate as a backdrop. A study (Schnure et al as quoted by Yongpei Cai & Kuan Xu) found that in the long term (25-30years) REITS offer greater compound annual returns than S&P 500 alternatives all through boom and bust cycles. The study showed similar results for Asia.
Whether the returns will reflect for Zimbabwe is still yet to be seen but with residential spaces for rent in chronic shortage and consequentially, high demand, betting on REITs should be a safe take. I intend to invest in REITs myself in the coming weeks in order to “put my money where my mouth is”. Zimbabwe holds immense potential in the built environment, the entirety of it. As my current and future colleagues and I work to make our impact in the industry, it is my sincere wish that newly listing REITS including Terrace Africa (Tigere REIT) become a beacon of hope. For Development, For Growth.
I’d like to also refer you to a deeper researched blog post on REITS by Priscilla Nyatsanga, click here to visit her blog post.