This video shows Kenneth Muchina (Director of Fundraising at Fusion) giving an explanation on what a REIT is and about REITs in Kenya. We hope that it helps to shed a little light on REITs.
REIT is short for Real Estate Investment Trust. REITs are very commonly traded in the USA, and elsewhere in the world. Although the regulations exist, Kenya’s first issue and listing is yet to take place.
A REIT is a regulated investment vehicle that enables investors to pool money together to invest in real estate which they typically could not acquire on their own. REITs in Kenya are regulated by the Capital Markets Authority (‘CMA’). Investors own units in the trust with the aim of earning a return from the trust, similar to how one would invest in shares and bonds through mutual funds. Investors will soon be able to get access to these units in Kenya through the Nairobi Securities Exchange (NSE) via a broker.
Types of REIT
There are two different types of REITS which will be available on the NSE; a Development REIT (d-REIT) and an Income REIT (i-REIT). A d-REIT primarily acquires real estate for development and selling of real estate. Generally d-REITs are liquidated and all monies are returned to shareholders upon completion of development of the underlying asset. On the other hand, i-REITs primarily acquire real estate to generate rental income.
Structure of a Kenyan REIT
Kenyan REITs are required to be structured as a common law unincorporated trust, which is then divided into units for investment. The Trust is established through a Trust Deed. The REIT is required to have a promoter, a REIT manager and a trustee who is independent of the REIT manager. The assets in the trust are held in the name of and under the control of the trustee.
What are the benefits of investing in a REIT?
Buying and selling property directly involves higher expenses and requires a great deal of effort. Investing in a REIT provides investors access to real estate investment opportunities with development type return simply by buying d-REIT units on the stock exchange.
REITs allow investors to own fractions of large projects, on relatively small investments.
REITs which are registered by the Kenya Revenue Authority (KRA) are exempt from income tax on investment income (except for withholding tax on interest income and dividends) and compensating tax.
Sale of assets held in a REIT which have appreciated in value will currently not be subject to stamp duty on the transfer, where the REIT is listed.
REITs provide investors with access to professionals such as property managers and fund managers who manage the assets.
Investment in a REIT provides diversification by region and type of real estate, as the REIT may hold a number of properties.
A word from Daniel Kamau Director of Real Estate, Fusion Capital
The region is currently facing an overwhelming surge in economic development, which creates the opportunity for a lot of building to be done. Fusion aims to assess and deliver what the real estate market demands, whether it be middle-income residential developments or luxury office and shopping mall complexes. Whilst there are risks involved, when managed correctly, the opportunity to make a good return is present."
Fusion Investment Management is regulated by the FCA in the United Kingdom and the CMA in Kenya.
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