Ipec urges review of 50% participation on REITS by pension funds
Staff writer
HARARE, Insurance of Pensions Commission (Ipec) Commissioner Grace Muradzikwa says Ipec has engaged Government to review the limit of 50% participation in Real Estate Investment Trusts (REITS) by pension funds.
REITS are seen creating the much-needed liquidity for the industry to meet its obligations while also promoting the participation of small funds in property investment which they currently cannot given the large amounts required.
Muradzikwa who was giving her opening remarks at the IPEC/ZSE/CHENGETEDZAI workshop on securities new products this morning said the biggest challenge is that of a high proportion of investment property to total assets which has been averaging about 50% in the last 3 years as the industry hedges against inflation.
REITS were approved as an investment class following a motivation by IPEC, Securities Exchange Commission and the ZSE to have this recognized as an investment class in response to the need to address some of the challenges that have been faced by the industry.
“The high investment property has, however, given rise to the challenge of illiquidity which has been worsened by contribution arrears, lower than expected contributions due to the impact of COVID 19, labour market distortions and awarding of non-pensionable allowances and poor performance of monetary assets, particularly in an inflationary environment.
“Therefore, IPEC 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, “she said.
Muradzikwa added that REITS would also address the challenge of valuation of investment property which has continued to bedevil the industry.
She added that IPEC and the industry, is 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,” she said.
The workshop sought to unpack an emerging asset class -REITs and raise awareness on the benefits of dematerialization of shares through Chengetedzai Depository Company.
Ipec is also working closely with the Zimbabwe Stock Exchange on the area of product development since the sector is a significant investor on the stock exchange.
“The discussions on the development of new products has come at an opportune time when we are bemoaning lack of diversity of investment classes in the insurance and pensions industry since only two asset classes namely investment property and listed equities are commanding
up to 80% of industry assets,” Muradzikwa said.
