Real Estate Investment Trusts (REITs) are investment vehicles that allow individuals to invest in large-scale, income-generating real estate. Currently in Kenya, we have four CMA approved REITs which include Fahari I-REIT, Acorn D-REIT, Laptrust I-REIT and Acorn ASA I-REIT.
I-REITs primarily focus on acquiring and managing income-generating real estate properties whereas D-REITs focus on developing new real estate projects from the ground up or substantially redeveloping existing properties. To support REITs in Kenya and allow more entrants into the market, the government can implement a variety of measures to create a conducive environment for their growth and development. Here are several strategies the Kenyan government could employ:
- Regulatory Framework
Clear and Transparent Regulations: Establish a clear and transparent regulatory framework that governs the formation, management, and operation of REITs. This includes guidelines on reporting, disclosure requirements, and investor protection.
Streamlined Approval Processes: Simplify and expedite the approval processes for the establishment and listing of REITs to encourage more entities to enter the market.
- Tax Incentives
Tax Breaks: Provide tax incentives to REITs, such as exemptions or reductions in corporate tax, income tax on dividends, and capital gains tax.
Double Taxation Avoidance: Ensure that REITs are not subjected to double taxation by making income distributed to investors tax-exempt at the corporate level, thus only being taxed at the investor’s level.
- Investor Protection and Education
Investor Protection Measures: Strengthen investor protection laws to safeguard the interests of REIT investors. This can include measures to prevent fraud, mismanagement, and ensure transparency.
Public Awareness Campaigns: Conduct public education and awareness campaigns to inform potential investors about the benefits and risks associated with investing in REITs. This helps in broadening the investor base.
- Market Development
Enhance Market Liquidity: Encourage the development of secondary markets for REIT shares to enhance liquidity and provide investors with more opportunities to buy and sell shares.
Support for Listing: Provide support for REITs to list on the Nairobi Securities Exchange (NSE), which can include subsidies or grants for listing costs.
- Infrastructure and Support Services
Develop Support Services: Facilitate the development of ancillary services that support REITs, such as property management, valuation services, and real estate consultancy.
Invest in Infrastructure: Invest in infrastructure projects that can enhance the value of real estate assets, thereby making REITs more attractive to investors.
- Policy and Legislative Support
Supportive Legislation: Pass laws that specifically support the growth and development of REITs, addressing issues such as property rights, land use, and real estate finance.
Public-Private Partnerships: Encourage public-private partnerships that can provide REITs with opportunities to invest in public infrastructure and development projects.
- Financial Market Stability
Monetary and Fiscal Policies: Implement monetary and fiscal policies that ensure a stable and conducive economic environment for investment. This includes controlling inflation, maintaining interest rates at reasonable levels, and ensuring overall economic stability.
Risk Management Framework: Develop a risk management framework for the real estate sector to mitigate potential risks that could affect REITs, such as property market bubbles or economic downturns.
- Encouraging Diverse REIT Types
Promote Different REIT Structures: Encourage the establishment of various types of REITs, such as equity REITs, mortgage REITs, and hybrid REITs, to cater to different investor preferences and market needs.
Sector-Specific REITs: Promote REITs focused on specific sectors such as commercial, residential, industrial, and infrastructure to diversify investment opportunities and spread risk.
By implementing these measures, the Kenyan government can create a favorable environment for the growth of REITs, which can contribute to the development of the real estate market, provide investment opportunities for individuals and institutions, and support overall economic growth.
