Real Estate Investment Trusts (REITs) in Kenya; Regulation and Registration by CMA

Kenya adopted REITs as an investment tool in 2013, becoming the third African country to do so. CMA aims to regulate various types of REITs, including Income-REITs, Development-REITs, and Islamic REITs.

But before we go into the details of the regulation and registration of Reits by the Capital Markets Authority of Kenya, let’s first understand what REITs are.

What are REITs and How Do They Work?

Real Estate Investment Trusts are a collective investment scheme in real estate that is structured as a trust where an investor owns rights or interest in the form of units and earns returns from income or capital gains. With REITs, people invest in real estate without buying properties themselves. When you invest in a REIT, you’re basically buying a slice of many different properties, like apartments, shopping malls, or office buildings. The property is managed by a Trustee on behalf of unit holders and professionally managed by a REIT manager.

These investments do earn money in a few different ways. First, by collecting rent from tenants who use the properties. Second, by selling properties for more money than they paid for them. And third, by earning interest on mortgages that they lend out to people who buy real estate.

REITs are popular because they allow people to invest in real estate without having to worry about managing properties themselves. Plus, they often pay out regular dividends to their investors, making them a steady source of income.

What types of REITs are provided for in Kenya?

i) Income real estate investment trust or “I-REIT”

This is a real estate trust that primarily derives its revenues from property rentals.

ii) Development Real Estate Investment Trust or “D-REIT”.

This is a real estate that is principally involved in development and construction for sale and/or rental. It is important to note that a D-Reit can be converted to an I-Reit once the property has been developed.

Additionally, REITs may be distinguished from their involvement with the securities exchange. There are those REITs that are registered with the SEC and are publicly traded on a stock exchange. These are known as publicly traded REITs. However, some are registered with the SEC but are not publicly traded. These are known as non-exchange traded REITs.

Consequently, an investor needs to know whether a REITs is publicly traded or not and the consequences regarding risks and benefits.

The Kenya National REITs

Kenya National REIT (KNR) is a public, and private sector initiative for social and economic transformation. KNR is organized as a company limited by guarantee to drive demand and inspire supply of infrastructure in housing, transport, energy, water, ICT and all other emerging infrastructure through REITs and INVITs.

To regulate and streamline the registration process for REITs, the Capital Markets Authority (CMA) has joined forces with the Sanduku Investment Initiative, the Association of Pension Trustees and Administrators of Kenya to establish the Kenya National REIT (KNR).

KNR’s primary responsibility is to facilitate the provision of affordable housing in Kenya, aligning with the Government’s Economic Transformation Agenda. Also, KNR is envisioned to be the accreditation authority for REITs and their service providers.

KNR will also act as the focal point for interaction with policymakers. According to CMA CEO, Mr Wyckliffe Shamiah, REITs was an area of interest by the National Government since REITs have the prospects of facilitating capital through capital markets to meet the ever-growing demand for purpose-built estates.

The Chairperson of Sanduku Investment Initiative, Mr Tom Mulwa, emphasizes that the only REITs that KNR will register are those that can enhance the growth of the national economy, create employment and deliver affordable houses to Kenya. The goal of these is to encourage the national government to support the domestic capital market.

Highlights

Once the proposed amendment is embraced by the relevant stakeholders, the following outcomes will ensue:

• REITs will fall under the jurisdiction of a centralized entity, KNR, which will collaborate with other policymakers to oversee and facilitate the registration of REITs in Kenya.
• This initiative by the CMA aims to finalize the fundraising endeavours for the continuous affordable housing scheme conducted by the National and County Governments.
• The initiative is expected to generate additional employment opportunities.

Disclaimer:

The information provided in this article is intended for informational purposes only and should not be construed as legal advice. Don’t hesitate to get in touch with us at info@koassociates.co.ke for any queries or legal advice.