The introduction of the real estate investment trust (REIT) in Morocco's real estate landscape is a significant move in opening up Morocco's commercial real estate sector to institutional investors. Will it bring the transparency the market so desperately needs?
FOR A RISING CORNER OF THE REAL ESTATE SECTOR that was not exactly welcomed with open arms in France, it should be somewhat less of a surprise if people do not immediately take to the introduction of REITs (or OPCI in French) in Morocco. Yet, for this novel investment tool, which functions as a kind of mutual fund for investors to pool their capital to own, operate, or finance income-generating real estate, the initial signs have been positive.In the decade since they were introduced in France, their assets have grown 15-fold. Much of this success is due to their unique tax status. Whereas REITs, which possess a market cap of USD1.2 trillion on the NYSE alone, are required to pay out at least 90% of their income as shareholder dividends to unitholders (i.e. investors) in the US, OPCIs pay out 85% of earnings to unit holders in France (and presumably in Morocco too). As a result of paying out to a large number of smaller unit holders, they are exempt from corporate taxes. They also operate according to highly transparent regulations. With their assets evaluated twice a year by two independent auditors who must specifically state their reasons if they fail to reach the same number, REITs are so highly regulated that their transparency engenders a large degree of investor confidence from players large and small. This, in turn, makes them easier assets to buy and sell, which in turn generates more economic activity, the argument goes. But much of this type of asset also depends on a country’s real estate laws. In France, for example, where it is difficult to evict tenants for non-payment, the country’s legal code limits how far the REIT market can grow. Contrast this with the UK, on the other hand, where landlords have the right to evict tenants after a single missed payment. As such, Moroccan legislators will have their hands full deciding the extent to which they must protect investors and tenants. REITs must also be composed of actively rent-generating properties and cannot invest in non-real estate assets of any kind (be they machinery, furniture, or automobiles, for example). Nor, for that matter, can they hold assets for sale or profit from the sale of buildings. Instead, they are designed to generate a steady income stream for investors, but as such offer little in the way of capital appreciation. They are also restricted from owning or operating hotels. Taken as a whole, then, one of the chief benefits of REITs is their governance structure. As an investment tool only introduced in the 1960s in the US and the 2000s in France, REITs have become an important tool for both retirement savers and retirees and those looking to simply diversify their portfolio with high dividends that have the potential for moderate, long-term capital appreciation. As a tool for bringing transparency to the market, and the trickle-down confidence this inspires across an entire sector, they are also welcome. If properly regulated and executed, Morocco’s difficult real estate market should benefit significantly in the coming five to 10 years from their timely introduction later this year.
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