Housing Dreams made into affordable projects
Real estate funds like the CMA and the NSE are taking steps to create housing dreams into affordable projects by setting up regulatory bodies to oversee the REITs.
Kenya’s Capital Markets Authority (CMA) is taking steps to boost investments in the real estate sector through the Nairobi Securities Exchange (NSE) by setting up a regulatory body to oversee Real Estate Investment Trusts (REITs). The CMA has partnered with the NSE, the Association of Pension Trustees and Administrators in Kenya (Aptak), and state-run real estate investment vehicle Sanduku to establish the Kenya National REIT (KNR). The goal is to raise Ksh1 trillion ($79 billion) through a public-private partnership with Ksh311 billion ($2.49 billion) coming from pension funds by 2027, with a significant portion invested in affordable housing projects.
REITs have struggled to gain traction in Kenya due to multiple factors, including punitive taxation, multiple land laws, and high compliance and listing costs. Limited investor sensitisation and poor first-hand experience in REIT investments, as well as a lack of investor confidence in the stock market, have also contributed to low uptake. The CMA introduced regulations in 2013 to govern REITs’ performance, but only one firm has been listed – ILAM Fahari I-REIT – and Acorn Student Accommodation REIT, which trades as a Development REIT (D-REIT) and Income REIT (I-REIT) on the Unquoted Securities Platform (USP).
The CMA hopes that the KNR will address the challenges facing REITs by registering all REITs and ensuring investment grade REITs are structured for immediate investor uptake. Once operational, the body will engage with investors to foster investment appetite and support as the affordable housing units roll out. CMA CEO Wyckliffe Shamiah believes that REITs are critical vehicles to meet the growing demand for purpose-built real estate solutions, especially for those at the bottom of the economic pyramid.
Uganda introduced its Collective Investment Schemes (REITs) Regulations in 2017, but real estate firms have yet to list. In 2013, Rwanda introduced Regulation No. 14 on REITs, but no REITs have been registered. Tanzania’s Collective Investment Schemes and Real Estate Investment Trust Rules came into effect in 2011, but only one REIT, Watumishi Housing Company, has been registered.
One challenge for REITs is competition from other capital markets products, such as company shares, Treasury bills, and corporate bonds, which offer more attractive returns. REIT investments’ taxation is also viewed as rental income or capital gains on property income, making it less appealing. However, Kenya’s efforts to attract private sector investment in affordable housing dreams may revive REITs’ prospects. In 2022, pension funds through Aptak urged President Ruto to set up a REIT and offer tax incentives as a pre-condition for financing affordable housing projects.