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Tawanda Musarurwa-Senior Business Reporter

Zimbabwe’s insurance and pensions sector regulator — the Insurance and Pensions Commission — says it has engaged authorities to revise the 50 percent participation limit for pension funds in real estate investment trusts (REITs). 

Local pension funds have long piled into ‘real assets’ such as property as a way to hedge their funds against inflation in the long-term.

But property investments are typically illiquid assets, that is, they cannot be easily sold or exchanged for cash without a substantial loss in value.

To remedy this anomaly, the regulator and financial players have pushed for the introduction of new investment assets on the market, but the industry wants greater involvement. 

Said IPEC Commissioner Dr Grace Muradzikwa yesterday: “Section 17 of the Finance Act put a limit of 50 percent participation in REITs by pension funds. 

“We have already flagged this to Treasury as a limiting factor, hence we are in the process of engaging Government to review the limit.

“Therefore, it is our hope that the Mid-Term Fiscal Review will take into consideration this request.”

REITs, which will be established on the United States dollar denominated Victoria Falls Stock Exchange (VFEX) as well as trade on the Zimbabwe Stock Exchange, will give pension funds and other institutional investors an opportunity to issue property derivatives that can improve their cashflows.

“The biggest challenge is that of a high proportion of investment property to total assets, which has been averaging about 50 percent in the last three years as the industry hedges against inflation.

“We envisages REITs as an asset class that will create the much-needed liquidity for the industry to meet its obligations. REITs will also promote the participation of small funds in property investment which they currently cannot given the large amounts required,” added Dr Muradzikwa.

“We also believe that REITs will address the challenge we have also been facing of valuation of investment property. As IPEC and the industry, we are all grappling with the valuation dilemma in the property space since the 2019 currency reforms.

“We think the valuation dilemma is largely due to the absence of a secondary trading market for properties, particularly the unlisted property holdings. Therefore, we are convinced that REITs will go a long way in bringing transparency in the valuation of investment property.”

According to Zimbabwe Stock Exchange (ZSE) business development officer Tinashe Mapara, REITs will be exempt from income tax and REIT security holders will only pay the 1 percent Capital Gains Withholding Tax on disposal of their securities and the 10 percent withholding tax on dividend earned.

There have been also calls for players in the industry to dematerialise their securities (that is, to hold them in electronic form), and these calls have become louder with the introduction of REITs and other new investment assets. 

Chengetedzai Depository Company (CDC) risk and compliance manager, Munyaradzi Mago, said in addition to a number of benefits for local firms and investors, dematerialising securities will also help in attracting foreign investors.