There is a possibility that real estate ventures may see more funding from the $600 billion pension fund industry flowing their way.

Recently passed pension amendments have tweaked restrictions on investment options related to the segment, allowing the funds to own shares in or provide debt financing to companies which build, own, and manage property but which are not their own subsidiaries.

Under the amendments, pension funds are now permitted to fund real estate companies in the form of debt or equity. For private companies in general, the limit of investments in this form is five per cent, but for real estate concerns, this limit does not apply.

In relation to investments in real property, the intent of which is to generate income, pension funds can take more than 30 per cent stake without prior approval of the Financial Services Commission (FSC), the new regulations say. However, they may not invest in mortgages for property outside of Jamaica.

An industry insider connected to one of the largest local pension funds said that the new regulation allowing funds to own shares in real estate companies in which they do not have a controlling interest will also improve market liquidity as shares are easier to dispose of than actual real estate. She said the costs associated with selling shares are also much less than offloading property.

Before this, the law restricted pension funds from taking a stake in private companies beyond certain limits without the FSC’s approval.

Now, equity and debt financing for real estate companies have been added as investment categories to which a limit does not apply.

The pension fund insider said the effect of the new amendments is to allow unlimited investment in real estate companies, but it should be noted, she said, that “real estate is not as easily converted to cash as, say, equities and bonds, so fund managers will have to be mindful of that. There is also the cost of transferring the shares versus that of real estate”.

As at March 31, 2019, the Jamaican private pension industry was valued at $607.2 billion. Total investments in real estate in all forms was $23.52 billion, or 3.86 per cent of total assets.

There was little year over year change. As at March 2018, pension funds held $21.37 billion, or 3.99 per cent of total assets.

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