By Jacqueline Nnadigwe
High interest rates make fixed-income securities attractive, but property investors are betting on longer-term income and capital growth
Nigerian investors are increasingly faced with a difficult choice: should they put their money in relatively short-term fixed-income instruments such as Open Market Operation (OMO) bills, or invest in Real Estate Investment Trusts (REITs) for exposure to the property market?
The answer depends largely on an investor's risk appetite, investment horizon, income needs and expectations about interest rates and inflation.
What are OMO bills?
OMO stands for Open Market Operations, a tool used by the Central Bank of Nigeria (CBN) to manage the amount of money circulating in the economy.
In simple terms, an OMO bill is a short-term investment instrument through which investors put money into securities issued by the CBN. The investor receives a return based on the price paid for the bill and its value at maturity.
For investors, one major attraction is that OMO bills are generally viewed as relatively low-risk investments because they are associated with the central bank and government securities market.
They can therefore appeal to investors who are more concerned about preserving their capital and earning a predictable return over a relatively short period.
However, "low risk" does not mean "no risk". Investors still face issues such as inflation, changing interest rates, liquidity and the risk of having to reinvest their money at lower rates when the investment matures.
What are REITs?
A Real Estate Investment Trust, or REIT, provides investors with a way to invest in real estate without having to buy an entire property.
A REIT pools money from investors and uses it to own or invest in income-generating properties such as office buildings, shopping centres, residential properties, warehouses and hotels.
The properties can generate rental income, part of which may be distributed to investors.
For example, instead of an individual needing hundreds of millions of naira to purchase an office building, the investor can buy units or shares in a REIT and gain exposure to a portfolio of properties.
REITs can provide investors with income as well as the potential for capital appreciation if the underlying assets or the REIT's market value increase.
The trade-off is that REITs can fluctuate in value and are exposed to the performance of the property market and broader economic conditions.
Why the choice matters now
The comparison has become particularly important in an environment where Nigerian interest rates have been elevated.
When fixed-income instruments offer attractive yields, investors may be tempted to choose them over assets such as equities and REITs.
The logic is straightforward: if an investor can earn a relatively attractive return over a short period from a government or central-bank-related security, taking additional risks in the property or stock market may seem less appealing.
This creates what analysts often call an "opportunity cost."
In layman's terms, it means:
If I put my money here, what am I giving up by not putting it somewhere else?
For REITs to become more attractive relative to high-yielding fixed income, investors may want to see the potential for property income and capital growth to compensate them for taking on additional risk.
But REITs have a different advantage
REITs should not necessarily be viewed simply as competitors to OMO bills.
They serve different purposes in an investment portfolio.
An OMO bill is primarily a fixed-income investment, while a REIT provides exposure to real estate.
An investor holding a REIT could benefit from rising rental income and increasing property values over the long term. However, the market price of a publicly traded REIT can also fall.
This means REITs may be more suitable for investors who have a longer investment horizon and can tolerate fluctuations in the value of their investment.
Inflation remains a major consideration
For Nigerian investors, comparing the headline return on an investment with the country's inflation rate is crucial.
An investment can generate a high nominal return—the return stated in naira—but its real return may be much lower after taking inflation into account.
For example, if an investment earns 20 per cent but prices in the economy rise by a similarly high rate, the investor's purchasing power may not have increased by 20 per cent.
This is particularly important for long-term investors because inflation can gradually erode the value of money.
So, where should investors put their money?
There is no universal answer.
For an investor whose priority is capital preservation, relatively predictable returns and a shorter investment period, OMO bills and other high-quality fixed-income instruments may be attractive.
For an investor seeking long-term exposure to real estate, rental income and potential capital appreciation, REITs may offer a more suitable option, although with greater market risk.
Importantly, investors do not necessarily have to choose one over the other.
A diversified portfolio could contain a combination of fixed-income securities, REITs, equities, cash and other investments, depending on the individual's financial goals and risk tolerance.
Notable Nigerian OMO Auctions
NOTABLE REITs IN NIGERIA
1. UPDC REIT
One of the best-known Nigerian REITs is UPDC Real Estate Investment Trust (UPDC REIT).
It was launched in 2015 and is managed by UPDC REIT Management Limited. The REIT provides investors with exposure to commercial real estate rather than requiring them to purchase properties directly.
Its portfolio has included properties such as office buildings, residential properties and other commercial real estate assets.
2. Sunu II REIT
Sunu II REIT is another Nigerian real-estate investment vehicle that has attracted attention in the market. It provides investors with exposure to income-generating real estate and illustrates the development of Nigeria's collective property-investment market.
3. UHOM REIT
UHOM REIT is another example of a Nigerian REIT structure, giving investors access to real estate through a pooled investment rather than direct ownership of individual properties.
Moments in History When OMO Bills became attractive
This created a difficult environment for other asset classes because investors could obtain attractive returns without taking as much market risk.
In October 2019, the CBN also introduced restrictions that effectively prevented many domestic investors from participating in OMO auctions, leaving primarily banks and foreign portfolio investors. This made OMO bills a major topic in Nigeria's investment market.
Moments in History When REIT became attractive
1. 2020–2021: Low interest rates changed the equation
During the COVID-19 period, Nigerian interest rates fell significantly. Returns on some traditional fixed-income investments became less attractive.
That made income-generating assets such as REITs more interesting to investors looking for alternative sources of income.
The appeal was essentially:
"If I can't get as much income from fixed income, can I get it from property?"
2. 2021–2022: Investors looked for protection against inflation
As inflation became a bigger concern, real assets—including property—received greater attention.
Property is often considered a potential inflation hedge, because landlords can sometimes increase rents as the cost of living and replacement costs rise.
However, this isn't automatic. Nigerian property prices and rents don't always move perfectly with inflation, and REITs themselves can fall in market value.
3. UPDC REIT Establishment
UPDC REIT is one of the most established name when discussing the history of Nigerian REITs.
It was launched in 2015, giving investors a way to participate in commercial real estate without directly buying and managing buildings.
Its appeal is particularly useful for the REIT concept because investors can potentially receive distributions from property income, while the value of their units can also rise or fall.
But there's an important twist
REITs haven't always been attractive relative to Nigerian fixed income.
When interest rates rose sharply from 2022 onward, investors could obtain very attractive yields from government securities and other fixed-income products.
That made the calculation more difficult:
Why take the price risk of a REIT when I can get a high yield from a relatively low-risk fixed-income instrument?
In very simple terms:
Low interest rates → REITs can look more attractive
High interest rates → OMO bills/T-bills/bonds can look more attractive
But it's not a hard rule. REITs can still perform well when rates are high if their rental income, occupancy and property values are strong.
The bottom line
The choice between OMO bills and REITs is ultimately a choice between relative certainty today and potential growth over time.
OMO bills may offer investors a relatively predictable short-term return, while REITs offer exposure to the potential long-term benefits of real estate.
For Nigerian investors, the most important questions are therefore not simply "Which investment pays more?", but:
How long can I leave my money invested?
How much risk can I tolerate?
What What will inflation do to my returns? And what role do I want this investment to play in my overall portfolio?
For latest information one should regularly check
HOW CAN INDIVIDUALS TRADE OMO BILLS AND REIT RESPECTIVELY
FOR OMO BILLS
OMO bills are not normally bought like ordinary shares on the NGX. They are CBN securities, and access is generally through banks and authorised primary dealers/brokers.
In practical terms, an individual would:
- Contact a bank or authorised investment/stockbroking firm that offers access to the Nigerian fixed-income market.
- Ask whether it currently has OMO bills available to retail investors or can facilitate a purchase.
- The institution tells you the maturity, price/yield, minimum investment and settlement terms.
- You transfer the money and the security is purchased on your behalf.
- You receive the proceeds at maturity according to the terms of the bill.
- Open a CSCS account and a trading account with a licensed stockbroker.
- Fund the brokerage account.
- Search for the listed REIT on the broker's platform or instruct the broker to buy it.
- Buy units/shares in the REIT, just as you would buy shares in a listed company.
Important: OMO availability to individuals has changed over time. The CBN's rules have also changed, so an individual shouldn't assume that an OMO auction is open to retail investors simply because the CBN is conducting one.
Also don't confuse OMO bills with Nigerian Treasury Bills (NTBs). Both are short-term government-related securities, but they are different instruments and are issued through different processes.
With an OMO bill, the individual is primarily buying a short-term debt security and holding it until maturity or potentially selling it through the fixed-income market, depending on the instrument and access provided by the intermediary
How to invest in a REIT
This is generally more straightforward if the REIT is listed on the Nigerian Exchange (NGX).
An individual can:
This article is for general information and is not personal investment advice. Investors should consider the specific terms, risks and costs of any security before investing.
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