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Who is Real Estate Investment Trusts meant for?

By WAFULA NABUTOLA | Jun 12th 2014 | 5 min read
By WAFULA NABUTOLA | June 12th 2014

Kenya: The Capital Markets Authority (CMA) finally gazetted the Real Estate Investment Trusts (Reits) regulations after about three years since releasing the first draft.

The authority took time to get feedback from relevant experts and professionals on its draft rules. It later expanded the platform of discussion, in conformity with the Constitution of Kenya 2010, which provides for public participation as part of the policy and or legislation making process.

Real estate per se is an exciting business. These days, people say they are into real estate business, by which they mean they are buying, selling or renting real property as agents and owners. Sadly, con artists have not been left behind.

Many people have accumulated wealth by getting into real estate. One does not need any special educational skills, other than to be keen on information gathering and dispensing, and ensuring that the information is insulated from the parties involved in the transactions.

Officers at the Ministry of Lands have become millionaires as a result of information and documentation peddling, manipulation and sometimes outright cheating, hence the rot at that Ministry.

Perhaps this is why the leadership therein is engaging in “new broom” tactics, like closing the central registry, so as to reorganise records. Lawyers make fortunes conducting what is commonly referred to as conveyancing, basically copying and/or cutting and pasting. Some of these officers and lawyers are a source of grief and disappointment to many. People have lost limbs and sometimes lives; families have fought to death as a consequence of these manoeuvres. 

Bold move

It is this light that I think CMA’s introduction of Reits in the property market — where real estate will be traded as one would trade shares at the stock market — is a bold move. The stock market itself has been mired in mystery and mysticism, with just a few people knowing and possessing much information and data about it, while the majority of Kenyans who are lured into the business but know precious little.

The question to ask is whether the Kenyan investments market is ready to accommodate the Reits. To answer this question, let us examine briefly the origins of Reits. Reits was passed into law in the United States Congress in 1960.

The first Reits was formed in the US in 1961. Before that time, investment in real estate was for a few. One had to be an accredited investor in order to participate in what was referred to as the Direct Participation Programme.

For one to qualify as an accredited investor, one needed to have at least a million dollars. These accredited investors formed partnerships in order to evade corporation tax, which was essentially double taxation, first on their personal income and then on company tax.

So Reits was meant to be inclusive by allowing every interested citizen to take part, essentially democratising finance. The US Congress intended to infuse broad-based participation, so it provided for certain tax advantages, but conditionally. 

For example, a Reits had to acquire and develop its real estate properties primarily to operate them as part of its own investment portfolio, as opposed to reselling those properties after they had been developed.

To qualify as a Reits, a company had to have the bulk of its assets and income connected to real estate investment and had to distribute at least 90 per cent of its taxable income to shareholders annually or quarterly or otherwise in the form of dividends. 


In addition to paying out at least 90 per cent of its taxable income annually in the form of shareholder dividends, a Reits must be an entity that would be taxable as a corporation but for its Reits status; be managed by a board of directors or trustees; have units (shares) that are fully transferable; have a minimum of 100 shareholders after its first year as a Reits; and have no more than 50 per cent of its shares held by five or fewer individuals during the last half of the taxable year.

The other requirements are that a Reits must invest at least 75 per cent of its total assets in real estate assets and cash; derive at least 75 per cent of its gross income from real estate related sources, including rents from real property and interest on mortgages financing real property; derive at least 95 per cent of its gross income from such real estate sources and dividends or interest from any source; and have no more than 25 per cent of its assets consist of non-qualifying securities or stock in taxable Reits subsidiaries.

A Real Estate Investments Trust generally, is a company (trust – meaning doing it professionally, but on behalf of others) that owns – and typically operates – income-producing real estate or real estate-related assets. 


Reits provide a way for individual investors to earn a share of the income produced through commercial real estate ownership — without actually having to go out and buying real estate.

The income-producing real estate assets owned by a Reits may include office buildings, shopping malls, apartments, hotels, resorts, self-storage facilities, warehouses, and mortgages or loans.

It is to be assumed that the purpose is to create a platform to encourage investment in social housing and low-income housing, which is the greatest housing need in Kenya today.

Right now, all indications are that Reits will operate like the Direct Participation Programmes of the US before Reits was introduced.

As a nation, we need to do some serious soul-searching and ask hard questions like who is Reits in Kenya meant for and towards which end? Is it beneficial to all concerned?

Is it fair to all concerned? Will it build better friendship and goodwill among Kenyans? Is there a critical mass of Kenyans who are knowledgeable enough to understand what is evidently a complex and a deeply intellectually challenging concept?

I would recommend that a specific civic education programme be developed and a Reits product promotion initiative be put in place to facilitate a broader understanding.

The writer is the Consultant-In-Chief at MyRita 

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