REITs continue to enjoy tremendous growth with market capitalization increasing from $389 billion in 2000 to over $1.1 trillion in 2018 in the US alone (FTSE Nareit, 2019).
The REIT model only gained momentum in Latin America during the last decade with the creation of vehicles such as FIIs (Fundos de Investimento Imobiliário) in Brazil, and the FIBRAs (Fideicomisos de Inversión en Bienes Raíces) in other countries of the region. In fact, Brazilian regulations date back to 1993 (Act No. 8668) but were only boosted when regulation improved in 2008.
The sector has seen varying levels of success and development among Latin American countries with Mexico taking the lead with a more consolidated instrument that is the most attractive for institutional investors. There are currently 15 FIBRAs listed in Mexico with a combined market capitalisation of over €13 billion including the most recent arrivals of Fibra Educa, Upsite & Storage which focus on education centers, real estate, industrial co-working and logistics respectively.
Other countries to have recently joined this market are Argentina, Chile, Colombia, and Peru following the approval of Fibra capital market regulations. In 2017, for example, the Lima Stock Exchange achieved the promulgation of Legislative Decree No. 1188 which grants tax incentives to individual investors so that instead of paying 28% of income Tax they pay 5% – a measure which is expected to boost Peru’s nascent FIRBIs (Fondos de Inversión en Renta de Bienes Inmuebles). Chile, on the other hand, saw the birth of its first FIBRA last September with a valuation of c. $500 million.
Meanwhile, one of Latin America’s dollarised countries, Ecuador, is taking small steps to grow its listed real estate fund industry. In 2016, Uribe & Schwarzkopf chose the Guayaquil Stock Exchange to launch Brik (Bienes Raíces e Inversiones de Capital Brikapital S.A.) with a portfolio of 21 assets including offices and retail units valued at $11 million.
Three years later, Fiducia S.A. has listed Fibra ECU01, the country’s second collective real estate investment vehicle simultaneously on the stock exchanges of Guayaquil and Quito. With an initial volume of $6.5 million, the FIBRA will invest in high quality offices with well-known national and international companies on leases between 5 and 10 years.
Ecuador, however, continues to have an unfavourable tax regime for REITs and real estate professionals are calling for the elimination of Corporate Income Tax which can reach up to 35% in Ecuador compared to 5% in the case of Peruvian REITs.