Regulators to develop legal regime for real estate trusts

Saturday April 25 2015

A building under construction in Kigali. PHOTO

A building under construction in Kigali. PHOTO | FILE 

By James Anyanzwa

Capital markets regulators in East Africa are seeking to harmonise regulations governing the operations of real estate investment trusts (Reits). This is expected to boost investment in the property sector and realise the dream of a common securities exchange.

The five EAC member countries are jointly developing collective investment vehicles through which investors can access a large-scale and diversified pool of assets in the property sector.

But experts fear that differing legal frameworks, particularly relating to taxation and geographical jurisdictions  of investment, could choke the growth of the vibrant real estate sector in the region.

For instance, while Kenya and Uganda have exempted Reits from taxation, Tanzania has not. Kenyan investors are also restricted from investing in Reits across the borders as opposed to investors from Uganda and Tanzania.

The regulations to govern the operations of Reits in Kenya, Uganda and Tanzania are expected to be completed in July 2015. Rwanda has already operationalized its Reits regulations.

“All Reits in Kenya and Uganda are tax exempt while in Tanzania they are taxable,” said Kenneth Kaniu, chief investment officer at the Kenyan-based Stanlib Asset management company.

In Kenya, Reits are exempted from corporation and income tax, save for the payment of withholding tax on interest  income and dividends. Corporate tax exemption is a critical component in the development of the Reits industry.

Reits are typically exempt from corporate tax as long as 90 per cent of net income is distributed to shareholders at the end of the financial year.

Reits are investment vehicles in the form of a company that is listed  on the securities exchange. This listing creates an opportunity   for the public to buy shares in these trusts and in the process provide equity capital to the developers. The company owns or operates income producing real estate such as shopping malls, offices and apartments.


The development of the Reits sector is expected to make bank financing competitive and reduce development costs in the region.

“The cost of land in Nairobi, Kampala and Dar es Salaam is high and the cost of debt has always been high in the region,” said Ronal Samani, director of corporate development at AMS Properties Ltd, a Kenya-based business.

The EAC Common Markets Protocol, which became effective on July 1, 2010, prioritises regionalisation of the East African capital markets.

It is argued that an integrated regional market will allow issuers to tap into the regional capital market to raise capital required to meet the costs of major infrastructural development and commercial ventures.

Harmonisation of the legal framework is also in line with the objectives of the East Africa Securities Exchange Association (EASEA), which envisages a common stock exchange, Mr Kaniu told participants at the East Africa Property Investment Summit in Nairobi last week.

Property experts say that the real estate sector in the East Africa region has experienced exponential growth over the past two decades and with a total population of over 150 million, shortages still exist in the retail, housing and commercial property sectors, presenting new opportunities for property investors and developers alike.

Increased government expenditure on infrastructure, ongoing investment in mixed used developments coupled with large amounts of foreign direct investment, are expected to boost growth farther.

Foreign investors

According to the property consultancy firm Knight Frank, East Africa is packed with real estate investment opportunities, which have seen it attract interest from international investors.

Betty Musyoki, a director in-charge of portfolio management and client services at Broll Property Kenya, said retail growth in Uganda, Tanzania and Rwanda is slow but Kenya continues to attract foreign investors and new brands.

“Apart from having a growing and stable economy, the biggest driver of retail in Kenya is the rapidly growing middle class, which does not shy away from spending,” she said.

“Kenya has seen increased interest from international retailers seeking to enter the market, either as sole ventures or through partnerships with local investors,” said Ben Woodhams, Knight Frank Kenya managing director.

In Tanzania, Dar es Salaam remains the focus of office market activity, with a number of new developments coming to the market in the city centre.

Following the enforcement of the Unit Titles Act of 2008, Dar es Salaam is seeing the emergence of an office sales market, though foreign companies and individuals are not permitted ownership under this law. The only available options for overseas companies are to lease space.

The prime residential areas of Oyster Bay and the entire Msasani Peninsula in Dar es Salaam are seeing a significant number of redevelopments, as houses are converted into multi-occupied apartment buildings.