Nigeria’s real estate investment trust (REIT) market has significant potential to expand, but stronger participation from pension funds will be essential to unlock that growth and attract stable institutional capital.
This view was highlighted by Prof. Kola Akinsomi, associate professor of real estate finance and investment at the University of the Witwatersrand, during an interview with Fortren and Company.
According to Akinsomi, pension funds play a critical role in supporting REIT markets globally because they provide the long-term capital necessary to finance large real estate portfolios.
However, in Nigeria, pension funds currently allocate a large share of their investments to government securities, particularly bonds that offer yields ranging between 15% and 20%.
The preference for government bonds, combined with regulatory challenges affecting REIT investments, has slowed the growth of Nigeria’s real estate investment trust sector.
Understanding Real Estate Investment Trusts (REITs)
A Real Estate Investment Trust (REIT) is a financial vehicle that allows investors to pool funds to invest in income-generating real estate assets.
These assets can include:
- commercial office buildings
- residential properties
- shopping malls
- logistics and warehouse facilities
- hotels and hospitality developments
REITs operate similarly to mutual funds but focus specifically on property investments.
Investors purchase units in the REIT and receive a share of the rental income and capital appreciation generated by the underlying real estate assets.
Globally, REITs have become an important investment class because they allow both institutional and retail investors to gain exposure to the real estate sector without directly owning property.
Pension Funds as the Backbone of Global REIT Markets
In most developed financial markets, pension funds are among the largest investors in REITs.
Pension funds typically manage large pools of retirement savings and seek long-term investments that generate stable income over extended periods.
Real estate assets are particularly attractive to pension funds for several reasons:
- predictable rental income
- long-term capital appreciation
- diversification benefits
- inflation protection
Because REITs distribute a large share of their income as dividends, they provide consistent cash flows that align well with pension funds’ long-term liabilities.
In major global markets such as the United States, United Kingdom, and Australia, pension funds play a central role in providing the capital that supports REIT expansion.
Why Nigerian Pension Funds Prefer Government Bonds
Despite the potential benefits of REIT investments, Nigerian pension funds currently allocate a large portion of their portfolios to government bonds.
One of the main reasons is the high yield offered by Nigerian government securities, which can range between 15% and 20%.
Such high returns make government bonds extremely attractive for institutional investors seeking stable income.
Government securities also carry relatively low credit risk because they are backed by the federal government.
As a result, pension fund managers often prioritize these instruments when constructing investment portfolios.
This preference has limited the amount of institutional capital flowing into Nigeria’s REIT sector.
Regulatory Barriers Affecting REIT Investments
Another major challenge facing Nigeria’s REIT market is the presence of regulatory and tax barriers that discourage institutional participation.
According to Prof. Akinsomi, two key issues affecting the sector are:
Stamp Duties
Stamp duties impose additional costs on property transactions within REIT structures.
These costs can reduce investment returns and make REIT structures less attractive compared with other financial instruments.
Withholding Taxes
Withholding taxes on dividends and other distributions can also reduce the net income received by investors.
These tax obligations may discourage pension funds and other institutional investors from allocating capital to REITs.
Addressing these regulatory barriers could play a key role in improving the competitiveness of Nigeria’s REIT market.
Nigeria’s Existing REIT Market
Nigeria currently has a small but growing REIT sector.
The main REITs listed on the Nigerian Exchange include:
- SFS REIT
- UPDC REIT
- UH REIT
These investment vehicles provide exposure to various types of real estate assets within Nigeria’s property market.
However, compared with REIT markets in more developed economies, Nigeria’s REIT sector remains relatively small in terms of total asset value and market participation.
Government Efforts to Expand Real Estate Investment
The Nigerian government has taken steps to support the development of large-scale real estate investment funds.
One notable initiative was the listing of the N1 trillion MOFI Real Estate Investment Fund Series 2 on the Nigerian Exchange Group in November 2025.
The fund offered 1 billion investment units priced at N100 each, representing one of the largest real estate investment initiatives in the country.
The MOFI fund aims to mobilize capital for large-scale property development projects while expanding investment opportunities in Nigeria’s real estate sector.
Government-backed initiatives such as this are intended to help stimulate growth in the property investment market.
Size of Nigeria’s REIT Market
As of December 2025, the total assets held by REITs in Nigeria reached approximately N483.06 billion.
While this represents significant capital within the real estate sector, REIT assets account for only 6.30% of Nigeria’s N7.67 trillion mutual fund industry.
This relatively small share highlights the limited role REITs currently play in Nigeria’s broader investment landscape.
In many developed financial markets, REITs represent a much larger proportion of the investment industry.
Why This Development Matters
The discussion around pension fund participation highlights several important issues affecting Nigeria’s financial markets.
Unlocking Long-Term Capital
Pension funds represent one of the largest pools of long-term capital in the economy.
Greater pension fund participation could significantly increase the amount of funding available for real estate development.
Strengthening the Property Sector
Increased investment in REITs could support the development of commercial and residential property markets.
This could stimulate construction activity and economic growth.
Expanding Investment Options
A stronger REIT market would provide investors with additional opportunities to diversify their portfolios.
This could reduce reliance on government securities.
Improving Capital Market Depth
Greater institutional participation in REITs could strengthen Nigeria’s capital markets by increasing liquidity and investment diversity.
Risks and Considerations
Despite the potential benefits, several challenges must be addressed before Nigeria’s REIT market can expand significantly.
Competition from High-Yield Government Bonds
As long as government bonds continue to offer high returns, institutional investors may remain reluctant to shift funds into REITs.
Regulatory Complexity
Taxation policies and regulatory barriers may continue to discourage institutional investors from entering the market.
Market Liquidity
Limited trading activity in REIT securities can reduce liquidity, making it harder for investors to buy and sell units.
Real Estate Market Risks
Property markets are sensitive to economic cycles, interest rates, and demand conditions.
Investors must carefully evaluate these risks before allocating capital.
Looking Ahead
The future growth of Nigeria’s REIT sector will depend on several key developments.
Regulatory Reforms
Reducing tax burdens and simplifying regulations could make REIT investments more attractive to institutional investors.
Pension Fund Policy Changes
Encouraging pension funds to diversify their portfolios may increase capital flows into the REIT sector.
Expansion of Property Development
Growing urban populations and housing demand could create new investment opportunities in real estate.
Capital Market Development
Strengthening Nigeria’s financial markets could support broader participation in REIT investments.
Conclusion
Nigeria’s REIT market holds significant potential, but stronger participation from pension funds will be essential to unlock its growth.
While government bonds currently dominate institutional investment portfolios due to their high yields, reforms that reduce regulatory barriers and encourage diversification could stimulate greater interest in real estate investment trusts.
If these challenges are addressed, REITs could become an important source of financing for Nigeria’s property sector while providing investors with long-term income-generating investment opportunities.
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By: Elsie Njenga
16th March,2026
