In 2015, financial services provider Stanlib Kenya launched its much-awaited Real Estate Investment Trust (Reit), a first for the Nairobi Securities Exchange (NSE).
The Reit was targeted at individuals seeking to invest in the property sector, even with limited funds, and was introduced at the price of Sh20 per share.
It came at the peak of the sector when developers were raking in billions of shillings from buying, developing and flipping residential and commercial property in Nairobi’s sprouting suburbs.
During a media roundtable at a Nairobi hotel a few weeks before the launch of Fahari, Stanlib fund managers from Kenya and South Africa exuded optimism that the Reit was the answer to opening up Kenya’s multi-billion-shilling property sector for the masses, even to those with little discretionary income.
“Many retail investors want to invest in real estate but are held back because of the high capital investment required and risks associated with it,” one of the managers told journalists.
“We handle the due diligence and present a bundled offer to investors,” he said, adding that the firm would adopt a scientific approach to analysing demand and supply to ensure projects had a quick exit rate and high returns.
The same model, the fund manager argued, was behind the development of South Africa’s Sandton City, Africa’s largest retail shopping centre owned by Liberty Group - the parent company that also owns Stanlib.
The Reit promised ordinary Kenyans that they would have a chance to own a piece of the real estate billions.
This did not happen. Five years later the story has taken a gloomy turn.
Stanlib Kenya is now finalising a transaction to sell off parts of its business including the Fahari iReit to ICEA Lion in a deal scheduled for completion on February 29, 2020, pending regulatory approvals.
With Fahari iReit yesterday retailing at Sh9.60 per unit at the NSE, the sale means shareholders will be losing more than Sh1.6 billion on paper value of their original investment.
These include large investors such as the World Bank’s private sector arm - the International Finance Corporation (IFC) - that sunk in Sh678 million and will now be cashing out on less than half of its investment.
The disappointing performance of Kenya’s first real estate investment trust highlights the distortions in Kenya’s real estate market that have left developers and investors with billions in losses.
Last month, mortgage lender Housing Finance Group (HF Group) announced it would be closing down its investment unit, HF Development and Investment Ltd (HFDI) in a move aimed at cutting losses and strengthening liquidity.
“HF Group has commenced the process of executing an internal corporate restructuring involving two of its beneficially wholly-owned subsidiaries, HFC Limited and HF Development and Investment Ltd,” said the company in a notice.
Formerly Kenya Building Society, HFDI was one of the earliest housing developers in the 1980s and 90s. It was responsible for major housing developments including Buru Buru, Komarock, Ngei and Woodley estates before going dormant in the late 1990s.
However, increased competition from new entrants over the past two decades and falling margins owing to low demand made the business unsustainable.
In 2018, HFDI posted Sh172 million in losses, almost tripling the Sh60 million loss booked in 2017.
The firm was also in the middle of developing Clay City in Kiambu County - a Sh5 billion residential estate comprised of 1,520 two and three-bedroom units priced at Sh6.7 million and Sh7.7 million respectively.
The closure of HFDI that holds a 33 per cent stake in Clay City now throws the project off balance with the December 2019 deadline for completion already past.
The closure further compounds the challenges for the parent company, which has been struggling with liquidity challenges in recent years.
According to the latest financial results, HF Group reported a 77 per cent decline in profit from Sh183 million in 2017 to Sh41 million in the year ended December 2018.
Home Afrika, another listed developer currently facing headwinds, is in talks with strategic investors to remain afloat on the back of rising operating costs and a slump in the market.
The firm’s losses for the year ended December 31, 2018 more than doubled to Sh346 million from Sh181 million in the previous year.
According to recent financial statements, revenues dipped by 59 per cent from Sh263 million in 2017 to Sh109 million in 2018, pushing the firm further into the red.
“This is attributed to the slowed growth in the real estate sector amid constrained credit access and a general slowdown in spending power among plot and house buyers,” said the company in a note accompanying the financial results.
In 2013, Home Afrika became the first to list on the NSE’s Growth and Enterprise Market Segment at an introductory price of Sh12 per share, listing 405 million ordinary shares that valued the company at more than Sh4.8 billion.
At some point, the share price jumped to Sh25, valuing the company at more than Sh10 billion. But it is now a shell with Sh214 million market capitalisation as at yesterday’s price of Sh0.53.
The firm’s liabilities also crossed the Sh1 billion mark against Sh356 million in assets, putting the company in the red.
This presents a significant risk as pressure mounts on the firm to meet its obligations, a factor acknowledged in the recent financial report.
“Failure to access required capital could adversely impact investments, cash flows, operating results or financial condition,” stated Home Afrika in the report.
“Additionally, if the company was going into the market to retire previous debt, it may be exposed to default risk.”
Home Afrika Managing Director Dan Awendo said they are in talks with a strategic investor for fresh capital.
“Discussions are still ongoing with strategic investors,” said Awendo.
“These things take time because investors have to come in and assess a lot of things and do their due diligence, so we are waiting for that process to be concluded.
“We expect the deal to close within the first half of this year.”
Mr Awendo said the company was in advanced stages of setting up a new unit to manage and lease properties, even as it looks at tapping into the government’s affordable housing plan.
“We have recruited personnel and filled out the positions with the people who will be managing the properties,” he said.
“We have also identified a few projects that we will begin with and we are optimistic that this will take off.”
“Our core business is housing and we intend to stick with our business model.”