Real estate remains one of Kenya’s most popular investment options due to its potential for capital appreciation and steady income. However, choosing between investing in Real Estate Investment Trusts (REITs) and directly owning property can be a tough decision. Both options offer unique advantages and challenges. REITs are collective investment schemes that pool funds from multiple investors to buy, develop, or manage income-generating real estate.
Kenyan REITs are listed on the Nairobi Securities Exchange (NSE), offering a convenient way to invest in real estate without owning physical property. Stanlib Fahari I-REIT, Kenya’s first listed REIT, focuses on commercial properties in sectors like mixed-use developments, retail, commercial, industrial, hospitality and residential.
Direct real estate investment involves purchasing and managing property, such as residential homes, commercial buildings, or land. This allows investors to have full control over their assets and generate income through rental payments or property sales.
REITs are more affordable for investors with limited funds who cannot fund direct real estate investments. One can start investing in development and construction REITs by purchasing shares on the NSE. Direct real estate investment requires significant capital to acquire properties, with costs for land, construction, and legal fees running into millions.
REITs are more affordable for investors with limited funds who cannot fund direct real estate investments. One can start investing in development and construction REITs by purchasing shares on the NSE. Direct real estate investment requires significant capital to acquire properties, with costs for land, construction, and legal fees running into millions.
REITs are more liquid as they are traded on the NSE. Investors can buy or sell their shares quickly. Direct real estate investments are illiquid, often taking months or years to sell a property. Direct real estate investments offer potential for higher returns.
REITs allow for diversification across multiple properties, reducing risk. However, REITs value can be influenced by stock market fluctuations. Direct real estate exposes investors to risks like tenant defaults, maintenance costs, low occupancy rates and market downturns.
REITs allow for diversification across multiple properties, reducing risk. However, REITs value can be influenced by stock market fluctuations. Direct real estate exposes investors to risks like tenant defaults, maintenance costs, low occupancy rates and market downturns.
REIT investors rely on professional management to oversee properties. Direct investors must handle maintenance, tenant management, and compliance, which can be time-consuming. While REITs like Stanlib Fahari I-REIT offer opportunities for small investors, direct real estate remains attractive for those seeking higher control and potential long-term gains. For instance, areas like Ruaka, Kilimani and Kitengela have seen property prices skyrocket due to urbanization, making direct ownership lucrative for seasoned investors. For instance, latest data from Hass Consult indicates that land prices for Ruaka, Kilimani and Kitengela have increased by 2.0 fold, 1.1 fold and 2.4 fold respectively over the last ten years to Ksh 110.1 mn, Ksh 406.1 mn per acre respectively.
Choosing between REITs and direct real estate depends on your financial capacity, risk tolerance and investment goals. For smaller investors or those seeking passive income, REITs are ideal. Direct ownership suits those with significant capital and those seeking to have full control over their investment. Both options can complement each other in a diversified portfolio.
