Slow uptake of REITs leads to change of tack

Saturday August 06 2016

Fusion Group chief executive Luke Kinoti (left) and China Wu Yi Company deputy manager Xion Kaihua during the launch of the Development Real Estate Investment Trust offer on June 23, 2016 in Nairobi. PHOTO | SALATON NJAU

Kenya is considering revising downwards the minimum amount of money required to invest in companies that own and operate income-generating property projects.

This follows investors’ lukewarm appetite for real estate investment trusts (REITs), the investment vehicles that were introduced by capital markets regulators to help small and individual investors own pieces of the lucrative property market.

The EastAfrican has learnt that the slow uptake of REITs is as a result of poor marketing, competition from alternative investment opportunities such as government securities, and the risky nature of REITs as investment vehicles.

Regulators are now considering new incentives to encourage investments in the REITs.

“REITs are a purely new concept and an extremely risky investment. We need to sit down again with industry stakeholders and agree on the minimum application amount that will allow investors to take up the risks,” an industry source said.

NSE chief executive officer Geoffrey Odundo said poor marketing has led to the slow uptake of REITs as many people still don’t understand it.


“REITs is a new product. We are now doing a lot of public education and training for trustees, and we will have a lot of engagement with the issuers,” said Mr Odundo.

Kenya introduced a Development Real Estate Investment Trust (D-REIT) setting the minimum application amount at Ksh5 million ($50,000), but only one company has floated the shares and it has struggled to win the confidence of investors.

Fusion Capital Ltd, a Kenyan private equity firm and real estate developer, came onto the NSE on June 23  with a D-REIT, the first  of its kind on the Kenyan market, aiming to raise Ksh2.3 billion by selling 100 million units priced at Ksh23 ($0.23)  apiece to professional investors.

Offer extension

The offer was set to close on July 15  but was extended by three weeks to August 4, after failing to get enough buyers.

Last year, Kenya’s first Income-Real Estate Investment Trust (I-REIT) issued by Stanlib Investments raised Ksh3.6 billion ($36 million), less than one-third of the targeted Ksh12.5 billion ($125 million).

READ: Kenya's first Reits offer misses target

Analysts attributed the low performance to competition from other investment instruments and the market’s poor understanding of the concept.

Stanlib Kenya Ltd however set the success threshold at Ksh2.6 billion ($26 million), and termed the issue a success and ripe for listing.

Last week, Kenya’s real estate firm Superior Homes announced that it would list on the NSE’s Growth Enterprise Market Segment (GEMS) by way of introduction, to improve visibility.

House prices in Kenya recorded a marginal increase during the second quarter (April-June) of 2016.

According to the  Kenya Bankers Association’s Housing Price Index, the average cost of houses across the country increased by 1.74 per cent in Quarter 2, compared with the 1.4 per cent rise recorded in the first quarter of the year.

The house price movement in the second quarter of 2016 is attributed to market demand and supply dynamics in the sector.