ZIMRE Property Investments (ZPI) Ltd will soon float a $16 million bond to finance the construction of its Selbourne Park Student Accommodation Hub in Bulawayo, as the group moves to reconfigure its portfolio towards the commercial and retail sectors.
Selbourne Park Student Accommodation Hub becomes ZPI’s second hostel facility in the city after Nicoz House.
ZPI managing director Edson Muvingi (pictured) says the next frontier of investments for pension funds is in student accommodation. He said the project had a targeted rental yield of 10% with operating and maintenance costs capped at 20% of gross rentals. The money will be raised through an arrangement known as co-mingled real estate fund (CREF) which allows each investor to own shares of the property according to the amount contributed. Under CREF, an investor can exit at any time by selling a portion of one’s holding.
“The next frontier in investment is in student accommodation, especially for pension funds. It’s not a social investment; internationally student accommodation has become the investment and in Zimbabwe, look at Nust (National University of Science and Technology), look at the Bulawayo section it has about 11 institutions. ZPI will also build student accommodation hubs in Masvingo and Gweru,” he said.
This follows the finalisation of the successful refurbishment of its Nicoz Building in Bulawayo and the completion of its $15 million Sawanga Mall in Victoria Falls which was funded largely from internal resources, with 99% coming from equity funds while the balance was funded by a ZB Bank facility. ZB provided a $2 million loan for the project. ZPI has been looking at reconfiguring its property portfolio by raising capital for property development through a Real Estate Investment Trust (Reit) as it aims to reduce administration costs to 20% from the current 70%.
Muvingi said Nicoz House had provided valuable experience in developing and managing student accommodation facilities.
The development comes at a time the Zimbabwe Stock Exchange (ZSE) is negotiating with interested parties in order to come up with a national framework on REITs in Zimbabwe.
A Reit is a regulated investment vehicle that enables the issuer to pool investors’ funds for the purpose of investing in real estate. In exchange, the investors receive units in the trust and, as beneficiaries of the trust, share in the profits or income from the real estate assets owned by the trust.
However, ZSE chief executive Justin Bgoni recently said the major obstacles revolve around tax issues. Although trusts are tax exempt in Zimbabwe, it appears they may not have limited liability.
“The major features of a Reit are: The requirement to hold majority of assets (at least 75%) in real estate, the requirement to distribute a large portion of the before-tax income (ranges from 70% to 100%) to unit holders and the Reit entity must qualify for a tax exemption,” he said.