How to Invest in REITs in Kenya: Ultimate Beginners Guide

For a long time, real estate has been seen as a very attractive and profitable niche for investment, with the possibility of capital appreciation and recurrent income. Nevertheless, the capital-intensive nature of investing directly in real estate has made it an obstacle for many investors. This is where the Real Estate Investment Trusts (REITs) step in, providing an open and easy way of investing in the real estate market for investors who cannot afford to or don’t want to own property but have a passion for real estate. 

REITs have gained considerable momentum in Kenya among investors who see an opportunity to diversify their portfolios and participate in the growth of the country’s real estate sector. In this complete REITs guide for Kenya, we will discuss their structure, benefits, and risks, review financial information, and provide investment directions for wise decisions. Read on to get answers to “How to Invest in REITs in Kenya.“

In addition, we will unveil a powerful tool that helps you calculate how much you could invest,and how much your returns will be. Keep reading.

What are REITs?

REITs are regulated investment vehicles that rely on the joint capital of numerous investors to own and operate real estate assets that yield income. Thus, REITs actualize the possibility of owning various kinds of capital property, such as residential properties, commercial buildings, shopping centers, hotels, etc. In other words, by purchasing REITs, individuals indirectly own a portion of these properties without bothering about direct purchase and management of the property. This is a big advantage of REITs over traditional forms of real estate investment.

The Legal Framework Governing REITs in Kenya

Kenya’s investment trusts follow the Capital Markets (Real Estate Investment Trusts) (Collective Investment Schemes) Regulations of 2013. These regulations underpin essential branding elements such as transparency, accountability, and investor protection. Additionally, the Capital Markets Authority (CMA) is mandated by the relevant legislation and regulations to supervise and regulate REITs.

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Types of REITs in Kenya

There are three main types of REITs in Kenya

1. Income Real Estate Investment Trusts (I-REIT): The primary objective of I-REIT is to aggregate funds raised from investors to purchase completed and stabilized real estate assets (such as offices, residential buildings, shopping complexes, and warehouses) that generate income. Instead of sales, the income is injected into the community through rent payments, and in turn, the money comes back as dividend payments to unit holders.
2. Development Real Estate Investment Trusts (D-REIT): A D-REIT is a specialized trust that invests in land purchase and development of real estate projects (for example, residential or commercial apartments). Upon completion of the development, these assets can be sold to earn returns on capital or converted into companies under an I-REIT structure to generate continuous income.
3. Islamic Real Estate Investment Trusts: The principal investment of an Islamic real estate investment trust (REIT) is in real estate developments that are conducted according to Shariah law and generate income. Before investing, a fund manager must verify that the estate is subject to Shariah law and that no or very few activities are out of the question within the estate.

Key Players in the Kenyan REIT Market

Though still in its nascent stages, the Kenyan REIT market has witnessed the emergence of a few notable players that have contributed to the growth and development of this investment vehicle. Currently, three authorized REITs are operating in the country:

1. The ILAM FAHARI I-REIT

Formerly known as the STANLIB FAHARI I-REIT, the ILAM FAHARI I-REIT is the first REIT listed on the Nairobi Securities Exchange (NSE). Established in 2015, this I-REIT is managed by ICEA LION Asset Management Limited and overseen by the Co-operative Bank of Kenya Ltd as the trustee.

The ILAM FAHARI I-REIT boasts a diverse portfolio of income-generating properties, including commercial and residential assets. Its portfolio comprises four key investments:

1. a) Greenspan Mall Limited: A mixed-use development consisting of a retail mall and office spaces in Donholm, Nairobi.
2. b) Bay Holdings Limited: Residential development comprising 118 apartments and eight townhouses in Nairobi’s Kilimani area.
3. c) Signature International Limited: A mixed-use development with residential apartments, office spaces, and a hotel in Nairobi’s Kizingo area.
4. d) Starling Park Properties LLC: Student housing facility near the United States International University in Nairobi.

2. Acorn Student Accommodation Income Real Estate Investment Trust (ASA I-REIT)

The Acorn Student Accommodation Income REIT, commonly called the Acorn I-REIT, focuses on the student accommodation sector in Kenya. This I-REIT was established in February 2021 by Acorn Investment Management Limited (AIML) and is overseen by the Co-operative Bank of Kenya Ltd as the trustee.

The Acorn I-REIT’s portfolio comprises purpose-built student accommodation facilities under the “Qwetu.” These facilities cater to the growing demand for high-quality, secure, and affordable housing options for university and college students in Kenya.

At the time of writing, the Acorn I-REIT has seven operational student accommodation properties in strategic areas near major universities and colleges in Nairobi. These include Qwetu Hurlingham, Qwetu Aberdare Heights, Qwetu Ruiru, Qwetu Chiromo, Qwetu Ruai, Qwetu Jogoo Road, and Qwetu Parklands. The I-REIT is currently managing 60,000 beds but has ambitions to manage 60,000 beds by 2030.

3. Acorn Student Accommodation Development Real Estate Investment Trust (Acorn D-REIT)

The Acorn D-REIT is another entrant in the Kenyan REIT market, focused on developing and constructing student accommodation facilities. Established in February 2021 by Acorn Investment Management Limited (AIML) and overseen by the Co-operative Bank of Kenya Ltd as the trustee, this D-REIT aims to capitalize on the growing demand for student housing in Kenya.

The Acorn D-REIT is primarily targeted at institutional and professional investors, with a minimum investment threshold of KES 5 million. It aims to acquire land and develop purpose-built student accommodation facilities, selling the completed properties or converting them into an I-REIT structure.

The Acorn Student Accommodation Development Real Estate Investment Trust (ASA D-REIT) now has KES 11.5 billion in assets under management. Thanks to its 2,400 beds and plans to build more hostels in Nairobi CBD, the ASA D-REIT is well-positioned to continue growing despite the economic downturn.

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The entry of these REITs, particularly those focused on the student accommodation sector, reflects the growing recognition of the demand for affordable and well-designed housing options for university and college students in Kenya. By offering investors the opportunity to participate in developing and managing these properties, these REITs play a crucial role in addressing the housing needs of the country’s expanding student population.

Advantages of Investing in REITs in Kenya

Investing in REITs offers several advantages to investors, including:

• Diversification: REIT is another way of getting exposure to the real estate market, and this allows investors to diversify their portfolios and eventually reduce the risk they could bring.
• Professional Management: REITs are managed by professionals with sufficient experience who are competent in devising property acquisition policies, paying out rent, and maintaining their portfolio assets.
• Liquidity: The fact that the shares listed REITs are on offer on the Nairobi Securities Exchange (NSE) or USP allows investors to trade on them without a hassle, which provides them with liquidity.
• Consistent Income Streams: As heavily regulated entities, REITs need to pay out as much as 90% of their net income as a dividend, and this structure enables a steady cash flow for the holders.

Risks and Considerations

While investing in REITs offers numerous benefits, it is essential to understand the potential risks and considerations:

• Market Volatility: REITs operate under certain market risks, and the unit prices under them could be exposed to numerous factors, including the economic condition, interest rates, and real estate market dynamics.
• Concentration Risk: At the same time, REITs with a larger ratio of properties from a single category or region might also be held accountable if this particular sector or area hasn’t been able to flourish equally.
• Regulatory Changes: Implementing restrictions, levies, and other laws in different ways may affect the profitability and activities of REITs, which are platforms that own and manage rental properties for various investors.
• Debt Financing: Leveraging in REITs (like acquiring or developing properties) through debt financing may lead towards investors’ risk exposure and thus adversely impact returns.
• Limited Growth Potential: Another key feature of REITs is that they are obliged to pay dividends on a considerable portion of their net earnings to shareholders in a way that deprives them of the capital needed for their own growth.

How to Invest in REITs in Kenya

Investing in REITs in Kenya is relatively straightforward, and there are several options available:

• Nairobi Securities Exchange (NSE): The ILAM FAHARI I-REIT is listed on the NSE, and investors can buy and sell units through licensed stockbrokers or investment banks.
• Unquoted Securities Platform (USP): The Acorn REITs are currently traded on the USP, an over-the-counter (OTC) platform. Investors can access these REITs through participating agents or the VUKA platform Acorn Investment Management Limited (AIML) developed.

To start, you must open a Central Depository and Settlement Corporation (CDSC) account with a licensed stockbroker or participating agent. This account will hold your REIT units, and you can buy and sell units through your broker or agent.

Minimum Investment Requirements

Real Estate Investment Trusts (REITs) in Kenya are subject to regulations set out by the Capital Markets Authority (CMA) on minimum investment criteria. A minimum investment of Ksh.5 million is required to participate in Development and Construction REITs (D-REITs). However, according to regulations, there is no minimum amount that investors must invest in Income REITs (I-REITs). 

On the other hand, a minimum investment of Ksh.5 million is required to be considered a professional investor. A minimum of seven investors is necessary for both D-REITs and I-REITs. This information is subject to change as the CMA pursues its goal of lowering the minimum investment amounts for D-REITs.

Savings and Investment Calculator: A Valuable Tool for Your Financial Planning

Before investing in REITs, be sure your financial strategy matches your risk tolerance and goals. Our free savings and investment calculator helps here.

This calculator shows how the initial amount, monthly contribution, interest rate, and time horizon affect savings and investment growth. Set target figures to see how your assets and savings will grow.

Here’s how the savings and investment calculator works:

1. Enter your initial balance (if any).
2. Specify your desired monthly contribution.
3. Input the expected interest rate or rate of return.
4. Select the duration (in years) for your savings or investment plan.

The calculator will then provide the estimated final balance, total contribution, and interest earned over the specified period.

This useful tool shows how your savings and investments will grow, helping you make better decisions and adjust your financial strategy. The Saving and Investment calculator can be invaluable when saving for a down payment, retirement, or other financial goal.

Final Word

Kenyan real estate investment trusts (REITs) offer a unique opportunity to diversify your holdings and ride the country’s growing real estate market. Research, recognizing risks and returns, and expert counsel are essential.

Use our free saving and investment calculator to set financial goals before investing in real estate investment trusts (REITs). You can protect your financial future by building a strong investment portfolio with REITs and financial planning. Try this calculator today!

Investors may adjust their selections to specific situations and risk tolerance by employing the right tools, discipline, and information. Remember to invest long-term. Start your real estate investment trust (REIT) journey today to secure your financial future.

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