Real Estate? Real Easy.

Welcome to the last edition of ፍራንክ Digest—in 2024!

New year, new financial goals, right? As always, we’re here to make sure you kick off 2025 with smarter insights in 5 minutes or less.

Here’s what’s coming your way:

• 🔏 New Year, New Riches: Real Estate Opportunities?

• ☕ Sip By Sip: How Coffee Economics Impact Your Morning Routine

• 🗝️ The Key Takeaways

Here’s to a prosperous 2025! 🥂

Thanks for reading!

Let’s Get Real About REITs

Investment

As we toss out last year’s resolutions and bring in fresh ones, why not add “become a real estate mogul” to your list? Thanks to REITs, you don’t need millions or a hard hat—just a little cash and the Ethiopian Stock Exchange launching in 2025.

On the back of the Real Estate Expo last week at the Sheraton Addis, our focus this week turns to the construction sector in Ethiopia. No doubt a major contributor to GDP, hovering around 18-20% for most years, and an increasing source of employment from የቀን ሰራቴኛ to project engineers. It also has tremendous social value in addressing housing gaps and providing suitable facilities for our industrial ambitions to replace imports as a country.

However, the sector has faced a setback more recently due to market distortions (cement and steel availability) and more acutely by a lack of finance, as banks were instructed by the National Bank of Ethiopia (NBE) to limit annual credit growth to 14% in order to control inflation.

This is where Real Estate Investment Trusts (REITs) can come in, as a source of finance for developers and offering an accessible investment opportunity for the average folk, just as easy as buying company shares on the stock exchange.

Think of a REIT as a pool of funds that is invested on building, operating or managing income producing real estate. This can involve apartments, office space, industrial, hospitals and even infrastructure (data centers, network towers and energy pipelines). Boy, do we need more of those!

They were first introduced in the US in 1960 to give individual investors a way to invest in a diversified portfolio of income-producing real estate. Over the years, proving to be a positive and growing source of fund for real estate, so much so that now they are offered in at least 41 countries including Kenya since 2014.

To qualify as a REIT, the portfolio must invest a major portion of its funds on real estate; derive income from rent, interest on mortgage or sales of property; and pay a minimum of 90% of its net income as dividend. In return, the investment trust gets incentives such as 0% or reduced corporate income tax, which differs from one country to another. In Ethiopia, we could imagine doing away with at least the 10% dividend tax instead of tampering with the 30% corporate tax? Food for thought.

The fact that REITs can also be traded on stock exchanges also make them a highly liquid investment, unlike a traditional real estate investment. And that’s on top of potential capital gains if there’s an increase in the value of REIT shares (check out our beginner’s read from last week on investing on ESX).

So what does this mean to me?

With the coming of Ethiopian Stock Exchange (ESX) in January 2025, many opportunities abound. Not least of all, collective investment tools that reduce entry requirements and offer exposure to many sectors of the economy from telecom to real estate.

Our investment options are about to expand from just equbs, time deposits and financial sector shares! Get ready, set, go!

Key Takeaways

1. REITs: A convenient source of fund for property developers and accessible investment opportunity for the retail investor 

2. Growing Popularity: Available in over 41 countries and growing, supporting massive urbanization and infrastructure requirements  

3. What’s in It for You? More investment opportunities are bound to come as we see ESX coming to town.