Lack of information blamed for low real estate investment trusts uptake

An outside view of a section of USIU's student hostels. [David Gichuruj, Standard]

Players in the real estate sector have cited the lack of information on how Real Estate Investment Trusts (Reits) work as one of the reasons for the low uptake of the investment vehicle. 

CPF Financial Services Chief Executive Hosea Kili said pension funds are ideal for investing in Reits, but many Kenyans are not familiar with how they work.

Reits are specially designed investment vehicle which allows one to earn from real estate but without the capital intensity that comes with it.

They allow one to buy a piece of an investment for as low as Sh500 and receive dividends through rental income in the case of I-Reit

As such, Reits open the real estate sector to the masses who can own part of the business through pension funds. Mr Kili said leveraging Reits can unlock the required liquidity for the government’s affordable housing agenda. 

Student accommodation

Speaking at the listing of Imara I-Reit by Local Authorities Pensions Trust (Laptrust) at the Nairobi Securities Exchange last week, he cited Acorn, which has invested in student accommodation using Reits.

“I challenge other trustees and pension funds to borrow a leaf from Laptrust and invest in Reits as opposed to investing in brick and mortar. Let us leave the business of brick and mortar to the developers,” said Mr Kili.

He said Reits have transformed the real estate sectors in South Africa and the United Kingdom, and the same can happen in Kenya.

He proposed a special counter at NSE that will be trading in foreign currencies to capitalise on the diaspora market, which is more knowledgeable on Reits and has a bigger appetite.

“This is even as we continue to educate our local investors to embrace Reits,” said Mr Kili.

Affordable housing

Association of Pension Trustees and Administrators of Kenya (APTAK) Council Member Tom Mulwa said Reits offer developers an avenue to address some of the supply-side challenges.

“As we perfect the I-Reit, we shall also test the D-Reits to boost the supply side and generate the desired momentum in affordable housing,” said Mr Mulwa.

He said the lobby has made several proposals to raise the uptake of Reits in the country.

One of them is the setting up of the Kenya National Reit (KNR), which would be a limited company by guarantee, with stakeholders drawn from across the board, including stockbrokers, bankers, property developers, Reits, Saccos and regulators.

“We shall use KNR to raise the legitimacy of Reits as an investment instrument,” said Mr Mulwa.

He said KNR would also be instrumental in research and development, an umbrella Reit aggregator for foreign investors in State infrastructure projects.

The pension industry, according to CPF Financial Services boss Mr Kili, is worth over Sh1.5 trillion.

This figure, he said, shows that the industry is capable of funding heavy infrastructure projects like the Nairobi Expressway and the Standard Gauge Railway. “The sector has identified Reits as the most credible investment grade vehicle for pension funds,” said Mr Kili. “We hope to launch the Kenya National Reit after regulatory approvals.”

He said the latest statistics from the Reits Association of Kenya show that Reits outperformed other asset classes globally with total returns of more than 20 per cent since the Covid-19 pandemic.

“In other words, there has been a consistent performance of Reits in the international space,” he said.

Kenya Property Developers Association Chairman Ken Luusa underscored the role of Reits in pooling funds for real estate.

“Without the real estate, there would be no Reits, and without capital, there would be no Reits,” he said.