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What are the best examples of reits in kenya?

What are the best examples of reits in kenya?

The Boom of Real Estate Investment Trusts (REITs) in Kenya

Real estate investment trusts (REITs) are becoming an increasingly popular way for investors to gain exposure to the Kenyan real estate market. REITs are companies that own and operate income-producing real estate and are traded on stock exchanges like any other publicly-traded company.

The rise of REITs in Kenya can be attributed to several factors. One of the main factors is the growing demand for income-producing real estate in Kenya. The increasing population and urbanization in the country have led to a growing demand for residential and commercial properties, which has made REITs an attractive investment option for investors looking for steady income streams.

Another factor that has contributed to the growth of REITs in Kenya is the ease of access to the real estate market. REITs provide a way for investors to gain exposure to the real estate market without the need to buy and manage properties themselves. This makes it a more accessible option for investors who may not have the time, expertise or resources to invest directly in real estate.

Additionally, REITs provide a way for investors to diversify their portfolios by investing in a range of properties across different sectors and locations. This can help to reduce the risk of investing in a single property or location.

However, despite the growing popularity of REITs in Kenya, there are still challenges that need to be addressed. One of the main challenges is the lack of transparency and governance in the market. This can make it difficult for investors to assess the quality of the REITs and the underlying properties.

Additionally, the lack of proper regulations and policies for REITs in Kenya can also present a challenge for investors. This can make it difficult for investors to understand the risks and returns of investing in REITs.

There are only 3 Authorized Real Estate Investment Trusts in Kenya:

1. The ILAM Fahari I-REIT.

This is a Shari’ah compliant REIT that invests in income-generating real estate projects. The REIT manager conducts a  Shari’ah compliance test that ensures non-permissible activities are not carried out on the premises.

2.Acorn Student Accommodation Development Real Estate Investment Trust (Acorn D-REIT)

D-REITs is a type of REIT in which resources are pooled together for purposes of acquiring eligible real estate for development and construction projects. This may include housing or commercial projects. D-REIT can be converted to an I-REIT once the development is complete where the investors in a D-REIT can choose to sell, reinvest or lease their shares or convert their shares into an I-REIT.

3.Acorn Student Accommodation Income Real Estate Investment Trust (ASA I-REIT)

This is a form of REIT in which investors pool their resources for purposes of acquiring long-term income-generating real estate including housing, commercial and other real estate. Investors gain through capital appreciation and rental income. The appreciation is usually distributed to unit-holders at the agreed duration.

Despite these challenges, the growth of REITs in Kenya presents a great opportunity for investors looking to gain exposure to the Kenyan real estate market. 

Advantages of REITS

  • Long Term Returns- REITs offer investors competitive returns as their performance is based on the performance underlying real estate assets in the REIT structure,
  • Liquidity-REITs offer investors’ enhanced liquidity compared to direct ownership of real estate assets. REITs thus enable investors to easily buy and sell units in a trust which has invested in real estate assets.
  • Consistent Income Stream– REIT structures specifically income REITs are mandated by the law to distribute at least 80% of their net after tax profits to their unit holders as dividends. This can provide a stable and consistent form of income annually for unit holders.
  • Diversification– When combined with other asset classes, REITs provide a unique diversification tool when incorporated in an investment portfolio.
  • Tax Benefits– REITs enjoy various tax considerations making them an attractive asset class for investors. REITs are exempt from income tax except for payment of withholding tax on interest income and dividends. Equally, REITs are exempt from stamp duty, value added tax as well as capital gain tax in some instances.


How do REITs work in Kenya?

There are several parties involved in the structure of REITs. This is purposely done to improve transparency, and accountability and ensure the interests of investors are fully protected. The parties are:

1.Capital Markets Authority (CMA)

2. A Trustee

3. The REIT Manager

4. The Property Manager

5.  Service providers

 

1. Capital Markets Authority (CMA)

This is an independent government agency that regulates financial markets in Kenya. It licenses, supervises, and monitors activities in the REITs market to ensure your investment is safe.

2.  A Trustee
This could be a person or company licensed by CMA to oversee the management and compliance of a REIT. In short, trustees take legal ownership of the assets in Trust and ensure that the funds you contribute are invested in line with the objectives and purpose laid out in the Trust Deed.  They charge a fee for their services.

The Co-operative Bank of Kenya Ltd is the Trustee for ILAM FAHARI I-REIT, Acorn D-REIT, and ACORN I-REIT.

3.  The REIT manager

The REIT manager is an entity appointed by The Trustee with the sole responsibility of setting up and managing the REIT’s investments.

  • They charge a management fee and performance fee for this service which is one of the main expenses the REIT incurs.
  • The REIT Manager, on behalf of the investors, acquires, manages, maintains, and disposes of REIT Assets.
  • They are also responsible for appointing the property manager, service providers and maintaining accounting records.

Currently, the REIT manager for Acorn D-REIT and Acorn I-REIT is Acorn Investment Management Limited while that of ILAM Fahari I-REIT is ICEA LION Asset Management Limited.

4.  The Property Manager

This is a property management entity that enters into a contract with the REIT manager to provide Property Management services to the REIT. They are paid management fees from the REIT or directly by the tenants.

Acorn Management Services Limited provides property management services to Acorn D-REIT and Acorn I-REIT while CBRE Excellerate offers property management services to ILAM-Fahari I-REIT.

4.   Service providers

These are providers of operational services to the REIT at a fee and are appointed by the trustee. They include:

  • Property managers
  • Property valuers
  • Structural engineers
  • Legal advisors
  • Tax advisors 
  • Auditors
     

REITs can either be Open-Ended or Closed-Ended Funds.

 

How do you invest/buy REITS in Kenya?

Investing in REITs in Kenya is super simple because all three are on the Nairobi Stock Exchange (NSE).

HOWEVER, the ILAM FAHARI I-REIT is on the main exchange while the ACORN D-REIT and ACORN I-REIT are on a lesser-known section of the NSE known as the Unquoted Securities Platform (USP), an OTC (Over The Counter) kind of market. 

Learn more: https://thewealthtribe.com/investing-in-real-estate-investment-trust-schemes-reits-in-kenya/

Our team of professionals will work with you to identify the best REITs to invest in and navigate the challenges of investing in the Kenyan REIT market. Contact us today to learn more about investing in REITs in Kenya.

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