Underdeveloped capital markets in Kenya continue to pose significant challenges for real estate developers, hindering their ability to access diverse pools of capital. This issue is particularly acute in the private markets, which are crucial for supplementing government efforts to provide housing.
Currently, Kenyan banks serve as the primary source of funding for real estate developers, providing nearly 95.0% of funding. This contrasts sharply with the situation in developed countries, where banks contribute only 40.0% of the funding, with capital markets stepping in to provide the remaining 60.0%. In Kenya, capital markets contribute a mere 5.0% to real estate development funding.
To overcome this challenge, Kenya must take several strategic steps to develop and strengthen its capital markets.
REITs have proven successful in developed markets as a vehicle for pooling investments in real estate projects. By offering attractive returns and liquidity, REITs can attract a broader investor base. To promote REITs in Kenya, regulatory bodies must simplify the approval processes and provide incentives for both local and foreign investors.
A robust regulatory framework is essential for instilling investor confidence in capital markets. The Capital Markets Authority (CMA) should focus on creating transparent, efficient, and investor-friendly regulations. This includes enforcing strict disclosure requirements and ensuring the protection of investors’ rights.
Public-Private Partnerships can play a pivotal role in bridging the funding gap in the real estate sector. By leveraging private sector expertise and resources, PPPs can help expedite the development of housing projects. The government should create a conducive environment for PPPs by offering tax incentives and streamlining bureaucratic processes.
Educating the public about investment opportunities in capital markets is crucial. Increased financial literacy can lead to a more informed and active investor base. Initiatives such as workshops, seminars, and online courses can help demystify capital market investments and encourage more people to participate.
Pension funds and insurance companies hold significant financial resources that can be channeled into real estate development. The government and regulatory bodies should create favorable conditions for these institutions to invest in real estate projects, including offering tax incentives and reducing investment restrictions.
Infrastructure bonds can be an effective way to raise capital for large-scale housing projects. These bonds offer investors a relatively secure investment with the potential for attractive returns. By promoting infrastructure bonds, Kenya can tap into both local and international sources of funding.
Strong corporate governance practices are essential for attracting investors to capital markets. Real estate companies should adopt best practices in corporate governance, including transparent reporting, accountability, and ethical business practices. This can help build trust and attract more investment.
