By Morris Aron
Small scale investors looking to own property and owners of property looking to sell will soon have a chance to transact after the Capital Markets Authority moved closer to actualising the creation of special investment platforms.
Just recently, CMA published regulations on real estate investment trusts (REITs), which use pooled capital to buy and manage income property and trade in its shares at the exchange.
Those who understand the workings of REITs say once up and running, property owners will be required to value their property, transfer it to the special purpose vehicle and in return be issued with shares, which will then be freely traded at the NSE.
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The listing of REITs will allow small investors participate in the real estate market through a platform where shares in real estate sector are listed on the Nairobi Securities Exchange like any other shares as opposed to the current arrangement where one has to buy a whole property.
“REITs will unlock capital and spur activity in the real estate sector especially with the sector’s good showing,” said Farhanna Hassanali, a manager with HassConsult, a property company who also sits at the board of Nairobi Securities Exchange (NSE).
Dealers in property and investment analysts say the move is bound to ‘free up liquidity’ in the real estate sector as more people will be able to invest in the sector.
According to the draft regulations, to qualify for listing at the exchange, each REITs will be required to be worth at least Sh300 million.
In addition, no single investor is to own more than 25 per cent of a REITs while a manager of REITs will be required to have invested at least Sh50 million in the said REITs.
Also included in the proposals is the requirement that REITs are classified into development and construction real estate investment trust (D-REITs), income investment trusts (I-REITs) and Sharia-compliant Reits depending on the investment focus area.
“With returns on trends in the real estate sector showing capital gains of between 15 and 20 per cent annually, this is welcome news as investors will have value for their money,” said Daniel Ojijo, managing director of Villa Care, a property firm.
The imminent listing of REITs is a product of the Finance Act 2011/2012, which allows floating of securities under REITs and which also attracts tax incentives.
