This update outlines the regulatory framework, applicability, practice, and registration process of REITs in Tanzania, aiming to provide comprehensive insights for potential investors and stakeholders.
Legal Framework
The regulatory environment for REITs in Tanzania is established under the Capital Markets and Securities (Collective Investment Schemes) (Real Estate Investment Trusts) Rules of 2011 (the REIT Rules). These rules set the groundwork for the establishment, operation, and management of REITs, detailing the compliance requirements for potential investors and managers.
The Capital Markets and Securities Authority (the CMSA) is the regulatory body overseeing the implementation and adherence to the REIT Rules, ensuring the protection of investors and the orderly development of the real estate investment sector.
Applicability
REITs are designed to cater to a wide array of investors, from individuals to institutional entities, by offering a transparent and structured vehicle for investing in real estate. REITs function as vehicles for investment in income-generating real estate assets, similar to investing in company shares. This includes residential, commercial, and industrial properties.
REITs and Foreign Ownership of Land
The operation of REITs in Tanzania is linked to the country's laws on land ownership, particularly the restrictions on foreign ownership. While REITs offer an avenue for investment in Tanzanian real estate, it is important to note that direct land ownership is generally reserved for Tanzanian citizens. However, through structured investment vehicles like REITs, foreign investors may be able to participate in the benefits of real estate investments indirectly.
REITs in Tanzania
Tanzania's REIT market is in its infancy, with the Watumishi Housing Investment REIT (WHI-REIT) being the only operational REIT in the country.
WHI-REIT was established to mobilise resources for the development of affordable housing for public servants in Tanzania. Its investment strategy revolves around developing, managing, and selling residential properties designed for public servants. Its portfolio includes a variety of housing units constructed in strategic locations across the country.
Currently, all the investments are owned exclusively by shareholders of WHI-REIT and are not available for trading on the Dar-es-Salaam Stock Exchange (the DSE). This lock-in period is to stabilise the REIT, allow for the maturation of investments, and prepare the REIT for broader market participation.
This lock-in period was expected to last for three years, after which the shares were anticipated to be made available for public trading on the DSE. Despite these plans, the transition to public trading has not yet occurred.
Procedure for Registration of a REIT
The procedure for registration of a REIT is detailed in the REIT Rules. The process begins with the submission of an application to the CMSA, accompanied by the necessary documentation, including the deed of the trust and the prospectus or offer document. Once approval has been received, the REIT will be registered with the CMSA, and if applicable, listed on the DSE for trading as per the Dar es Salaam Stock Exchange Plc Rules, 2022.
Additional requirements for REIT registration in Tanzania
1. The Management Company
A REIT in Tanzania must be managed by a company incorporated in Tanzania under the Companies Act No. 12 of 2002 (the Companies Act). The management company is responsible for the establishment, operation, and administration of the REIT.
The management company is required to have at least 30% Tanzanian equity and should ideally be a subsidiary of a company in financial services, property development, property investment holding, or any institution permitted by the CMSA. Furthermore, the management company must always maintain a minimum shareholders’ fund of Tanzanian Shillings One Billion (TZS 1,000,000,000).
2. The Trustee
The appointment of a trustee is mandatory for a REIT, with the trustee playing a critical role in safeguarding the interests of the unit holders. The trustee must be a bank or financial institution incorporated as a body corporate under the Companies Act. As such, the trustee is required to have a minimum issued and paid-up capital as required for commercial banks by the Bank of Tanzania.
3. Investments of the REIT
A REIT's investments are restricted to:
- real estate;
- single-purpose companies (dealing with real estate);
- real estate-related assets;
- non-real real estate assets; and
- cash, deposits, and money market instruments.
Importantly, at least 50% of the REIT’s total asset value must be invested in real estate and/or single-purpose companies, with a cap of 25% on investments in non-real estate-related assets.
Conclusion
As Tanzania progresses in refining its REIT framework, the focus remains on expanding the real estate portfolio managed under REITs and integrating these trusts further into the national capital market.
Additionally, the regulatory framework, meticulously detailed in the REIT Rules and overseen by the CMSA, ensures a structured and secure environment for both local and foreign investors. This framework not only protects investor interests but also signals the growth of Tanzania's real estate investment sector.
Despite the early stage of Tanzania's REIT market and the current exclusivity of investment opportunities within WHI-REIT to its shareholders, the anticipation for broader market participation remains high.
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