A REIT is a security that sells like a stock on the stock exchange and invests in real estate directly, either through properties or mortgages
Introduction of Real Estate Investment Trusts by Kenya’s Capital Markets Authority is intended to open up space for even the smallest of Kenyan investors, for whom the only alternative investments have been stocks, bonds or insurance. Reits – which are securities that sell like shares on stock exchanges and invest in real estate directly – typically offer investors high yields, and highly liquid ways and means of investing in real estate.
REITs are typically exempt from corporate tax as long as 90% of net income is distributed to shareholders. REITs are commonly structured as closed ended trusts due to the illiquid nature of property. Individuals can invest in Reits by buying shares directly on an open exchange or by investing in a mutual fund that specializes in real estate. An additional benefit of Reits is that they may allow dividend reinvestment plans (DRIPS). They have tax advantages too.
Kenya’s capital markets can play a strong role in the further development of the real estate sector. The introduction of REITs is viable given the demand for real estate, and the need for additional financial instruments.
The capital markets can help mobilize and allocate resources, as there is a strong demand and cultural bias among Kenyans towards property investments, among the Kenya’s’ middle class investment in real estate is deemed the ultimate Goal!, a break through,
Retirement Benefit Schemes as well as many individuals are already investing in property but many are very limited in their ability to do so in that they cannot afford direct investments that are not liquid.
With the introduction of REITs the property developers would come to the capital markets to raise funds. It is also likely that through a higher level of participation through the capital markets, bank financing would be forced to become more competitive thus helping to further reduce development costs.
• REITS enable you to diversify your portfolio into real estate.
• REITS offer strong prospects of capital gains and high dividend income. Real estate prices have more than tripled in Kenya between 2000- 2010, outperforming some asset classes like equities and government bonds.
• The predicted economic growth in Kenya is looking to lift property prices higher, and with the demand for housing in the middle and lower end of the property market considerably high, REITs are expected to perform quite well.