Fund managers in real estate face inability to pay returns, says CBK

The country’s financial regulators led by the Central Bank of Kenya (CBK) have warned on the liquidity risks facing fund managers and pension schemes with an exposure to real estate.

This could lead to such investment managers being unable to pay matured returns or member benefits owing to a property slump in recent years now worsened by the Covid-19 pandemic.

“The pension schemes and fund managers who have invested in buildings and land face liquidity risks, occasioning delays in settling member benefits,” said the Financial Stability Report (FSR) 2020.

Produced annually, the FSR assesses the weakness and strength of Kenya’s financial system and reviews the period from January 2019 to June 2020.

Contributing to the FSR include other sector regulators such as the Retirement Benefits Authority (RBA), the Capital Markets Authority (CMA), the Insurance Regulatory Authority (IRA), and Sacco Societies Regulatory Authority (SASRA).

Data from the National Treasury, Ministry of Trade, Industry and the Kenya Deposit Insurance Corporation (KDIC) is also included.

The FSR noted that during the period under review, the occupancy rate of property declined, impacting the selling and rent prices.

According to the report, the supply and uptake of property in the past have been hit by slow economic growth, general elections uncertainties, banking industry instability and interest rate controls that constrained lending to real estate sector.

“The activity in the real estate sector declined in 2019. The demand for property was subdued due to slow economic growth, especially for middle and high income earners,” said the FSR.

Pension funds are among those who have a significant exposure to real estate with credit from the real estate sector growing 3.8 per cent in 2019.

Real investment firm Cytonn has also been on the spot over allegations of inability to pay matured investor claims. 

Recently, a businessman has moved to the High Court seeking liquidation of Cytonn Investments over a Sh14.3 million debt.

The investment was under the firm’s High-Yield Solution Scheme with promised returns of up to 19.9 per cent.

The Capital Markets Authority (CMA) in September raised alarm over the failure by Cytonn to honour matured investors’ claims stretching to over Sh122.8 million in some of the firm’s unregulated funds.

This is part of a protracted legal battle between CMA and the real estate investment firm’s Cytonn High Yield Fund.

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