Real Estate Insurance Trusts In Uganda.
A REIT is a regulated investment group that enables collective investment in real estate, where investors pool their funds and invest in the trust to primarily earn income from real estate, as beneficiaries of the trust. Or let’s say are companies that own or finance income-producing real estate across a range of property sectors.
In Uganda, REITS are provided for under The Ugandan Collective Investment Schemes (Real Estate Investment Trusts) Regulations, 2017 (the “REIT Regulations”) by the Capital Markets Authority (the “CMA”).
What are the different types of REITs?
Equity REITs own or operate income-producing real estate. The majority of REITs are publicly traded equity REITs.
Private REITs are offerings that are exempt from SEC registration and whose shares do not trade on national stock exchanges.
MREITs (or mortgage REITs) provide financing for income-producing real estate by purchasing or originating mortgages and mortgage-backed securities and earning income from the interest on these investments.
Public non-listed REITs (PNLRs) are registered with the SEC but do not trade on national stock exchanges.
How to Establish the Real Estate Insurance Trusts (REIT) In Uganda.
An interested person intending to establish and issue an I-REIT must apply to the CMA for authorization to issue the INCOME REIT. The management must present to the CMA:
- Draft of the trust deed
- Draft prospectus or information memorandum
- Draft management services agreement with the REIT manager
- Draft agreement with a property manager
- Valuation reports of the properties to be transferred to the REIT
- A legal opinion confirming the title to the property
- A contract with and the report of the structural engineer, and;
- Audited financials of the REIT manager and the trustee
FINANCIAL BENEFITS OF REITS.
The “REIT Regulations” by the Capital Markets Authority regulates more to pay a minimum of 80% of their earnings as dividends to their investors which could have been a taxable income but due to the CMA authority to pardon a collective registered scheme.
In Uganda, the exemption of VAT and stamp duty embraces good investing conditions for the interested since there is only individual tax rates.
Derived steady incomes from rents paid to the owners of commercial properties whose tenants often sign leases for long periods of time, or equity crowdfundraisng for the properties at interest.
Report earnings per share based on net income. REITs operate along a straightforward and easily understandable business model. When reporting financial results, REITs, like other public companies, must report earnings per share based on net income
REITs over time have demonstrated a historical track record providing a high level of current income combined with long-term share price appreciation, inflation protection, and prudent diversification for investors across the age and investment style spectrums.
However, REITs, like any other venture, have shortcomings. They include;
An investor will not be able to access funds before the expiry date of a close ended REIT. Unless the board of trustee have to settle such a condition by selling off property units to accommodate his needs.
Economic and political situations that could lead to depreciation in the value of the property.
With I-Reits, there may be an inflation in rental income when termination of some tenants rental policies and takes time to replace them.
There is competition from other assets classes such as treasury bills and stocks.
Why should I invest in REITs?
REITs are an important investment scheme for both retirement savers and the young age who require a continuing income stream to meet their living expenses. All in reasons to why you should invest in them below:
- Liquidity. REIT shares are traded on the major stock exchanges.
- Transparency. Listed REITs are monitored by directors, analysts and auditors
- Stable dividends yield. REITs will produced a steady stream of income through a variety of market conditions.
- Long term performance. REITs have provided long-term total returns similar to stocks and other investments
Who invests in REITs?
In Uganda, starting from an individual to an organized group, all are allowed to invest for dividends in the real estate groups. Uganda as a country has the CMA to regulate the REITs but has not listed any single REITs.
Uganda also needs to fix disorder in the management of registration of land, the authenticity of land ownership is not satisfying, and this will surely keep away investors.
How Do REITs Make Money?
By leasing space and collecting rent on its real estate, straightforward and easily understandable business model. This income collected is then paid out to shareholders in the form of dividends.