REITs in Kenya: The Nairobi Securities Exchange (NSE) in partnership with the REITs Association of Kenya (RAK), Acorn Holdings Limited and ILAM Fahari I-REIT on 13th July conducted a media workshop on Real Estate Investment Trusts (REITs) in Kenya. REITs are regulated collective investment schemes where REIT managers source funds to build or acquire real estate assets, which they sell or rent to generate income.
The income is then distributed to the investors. The property is held by a trustee on behalf of a unit holder and professionally managed by a REIT manager. REITs provide Kenyan investors with an opportunity to invest in the real estate sector without requiring large sums of money and addresses the challenges facing Real Estate owners and developers. REITs also mitigate the substantial risks faced by investors when investing directly in real estate by giving them access to professionally managed, regulated investment vehicles.
The Capital Markets Authority (CMA) Chief Executive, Mr Wyckliffe Shamiah, said Real Estate Investment Trusts (REITS) have the potential of unlocking the value of the real estate sector by facilitating developers’ access to capital that can facilitate growth from the capital markets. Investors also get an opportunity to diversify their investment portfolios.
“We therefore encourage issuers (real estate developers) and investors to consider REITS which is a regulated product with safeguards to protect investors,” said Mr Shamiah.
REITs have a strong potential to support local developers’ access to capital through the capital markets to bridge the growing demand for purpose-built real estate solutions. “The introduction of REITs in Kenya was an innovative approach to enable property owners/developers address finance constraints that restrict the access to this asset class and offer investors with a matched opportunity to access real estate developments,” he said.
Mr Geoffrey Odundo, Chief Executive of the NSE, noted that in 2013, Kenya became the third African country to establish REITs as an investment vehicle with the Kenyan REIT regulations providing for three types of REITs, namely I-REITs, D-REITs and Islamic REITs. The NSE currently has three REITs – the ILAM Fahari I-REIT, which started trading in November 2015; the Acorn Student Accommodation I-REIT; and the D-REIT launched in February 2021.
“Property in Kenya has always been an emotive subject. REITs have opened up a new investment asset class that is accessible not only to large investors, but also retail investor,” said Mr Kenneth Masika, RAK Chairman. “REITs give the retail investor the ability to participate in the ownership of larger developments that would otherwise be out of their reach. All this while offering solutions to the traditional challenges involved with property investment especially illiquidity, transparency and price discovery.”
Speaking on lessons learnt from fund raising, feedback and the future of REITs, Mr Raghav Gandhi, CIO Acorn Holdings Limited, said REITs are the ideal vehicle for investments by institutional investors in real estate globally and so present the perfect opportunity in Kenya towards institutionalizing investments in real estate.
“The success of this asset class is hinged upon continuous engagement among all stakeholders including regulators, developers, media and the exchange with a view to demystifying the risks, rewards and opportunities for potential investors,” Gandhi said.
Presenting on the measurements and engagement with the market, ILAM Fahari I-REIT CEO, Mr Einstein Kihanda explained that the main objective of REITs is to deliver to unit holders predictable, consistent and tax efficient property returns comprised of annuity-style distributions, plus regular capital growth. The sum of income returns and capital growth often outperform core-inflation, he added.
The Kenyan REITs market has the potential for vast growth and to transform the economy. The NSE in partnership with the Capital Markets Authority (CMA) and the REITs Association of Kenya has been focused on exploring opportunities in the REITs market and addressing the challenges impacting issuers and investors’ uptake of this product in order for the REITs market to improve and deepen capital markets.