Real Estate Investment Trusts: Investing in Real Estate in Kenya

Lamudi Kenya looks at the effects of REITs in the real estate market.

Kenya is the 41st nation in the world and 2nd in Africa after South Africa to introduce Real Estate Investment Trusts simplified as REITs in the most active equity market in East Africa, which is set to boost to Kenya’s real estate. This followed pressure on the Capital Markets Authority (CMA) to tap into the flourishing property sector in Kenya.

Real Estate Investment Trusts are Real Estate Company Corporations which own, develop or manage different types of properties. REITs are investment tools for resource mobilization for construction or for buying properties for investment in return for rental income or sale. The income is then to be divided per shareholding of the company at the end of the financial year.

REITs may choose to concentrate on one main field of real estate or may diversify to all types. They include income REITS (invest in or own properties and make money for investors by collecting rental income) and Development REITS (lend money to inventors or invest in financial instruments protected by mortgages or real estate).

Real Estate Investment Trusts are traded like stocks and investors can purchase and sell shares under the regulation of CMA. In a market where construction costs are relatively high, the developers will be able to get financing through the capital markets.

This will ease the financing hurdles for developers making it competitive, rippling down to lower mortgage rates in addition to the enactment of Kenya’s Bankers’ Reference Rate of 9.13 percent. It will also create a platform for individuals and groups to invest in the real estate market, something which is currently out of reach for the majority of Kenyans.

As the country is facing a housing shortage of 150,000 units per year, specialized REITs are encouraged for the low and medium cost houses as many developers are targeting the high-end market which is considered lucrative.

As an incentive for investors, they are exempted from VAT on rental income and professional services offered, from corporate tax in a country imposing 30% corporate tax, from capital gains tax and from stamp duty on the purchase, sale and transfer of properties.
Currently, Stanlib Kenya Limited, Fusion Management Limited, CIC Asset Management Limited, Centum Asset Management Limited and UAP Investments Limited are the only REIT managers licensed by the CMA. Though, there is yet to be an official listing at the Nairobi Securities Exchange.