VENTURES AFRICA – About 98 percent of World’s billionaires struck their fortune in real estate, according to a past publication by Forbes Magazine that also ranked Kenya the World’s seventh fastest growing market.
However, the country’s retail investors have had limited instruments to lay claim to a share of the considerably rewarding property market. The missing link has been the Real Estate Investment Trusts (REITs) that are soon taking shape.
The Capital Markets Authority now say the prolonged process of developing the regulatory framework for REITs was now nearing its conclusion.
Former Chief executive of Kenya’s Capital Markets Authority Stella Kilonzo said the framework has had to undergo a rigorous consultative process.
Among those roped into the consultative process include developers, market intermediaries and fund managers. “The fund managers will be the ones expected to talk to the clients and institutions to buy the REITs,” said Kilonzo.
The 10-month wait from the time the statement was made may be nearing its sunset with the final draft now with the legal department for appropriate fine-tuning.
The CMA’s legal team is working with an undisclosed Australian consultant in a process expected to be completed in the near future.
Thereafter, the guidelines are expected to go back to stakeholders for further consultations.
The new law will allow licensing of companies operating REITs to be listed on the 57-year old Nairobi Securities Exchange.
The CMA has been craving for a diversified product offering at the NSE by 2014 as captured in its five-year strategic plan dating back 2009.
A REIT is a company that owns in most cases manages income-producing real estate by combining the capital of many investors to acquire equity financing for all forms of real estate, according to the National Association of Real Estate Investment Trusts of the USA.
A REIT occupies a space almost similar to a mutual fund for real estate because investors enjoy the benefit of a diversified portfolio managed by professionals.
The shares in a REIT are however usually but not always traded on a security exchange. Only the privately-owned Africa Reits Ltd is known to offer real estate trusts.
It’s based in Nairobi with regional operations in Kampala, Dares Salaam and Juba, and it primarily concentrates on development REITs-pooling of funds to put up property. Africa Reits, which has already invested in several housing developments in Nairobi and Athi River, had equity valued at $12 million as at last year.
The investing public is expected to favour the rents-based REITs due to less risk involved.
The start of trade in quoted REITs, possibly before the end of the year, will be a relief to retail investors who have been ready to sink money into property for the last five years.
Pension fund managers are investing more money in offshore investment schemes, real estate and equities market as profit prospects and security of investment dictate investment patterns.
The Pension Schemes Investment Performance Survey released by actuarial firm Actuarial Services East Africa indicates that compared to the last quarter, fund managers shied away from the fixed income securities market due to low returns as high interest rate regime and skyrocketing inflation dampen profits. However, the segment still accounts for most of the proceeds.
The report indicates that 66.4 percent of the 35.4 billion shillings ($422 million) – of about 70 pension schemes studied- invested in fixed income securities, notably Treasurer bills and bonds.
Investment in offshore schemes also shot up by 50 percent between the first and the second quarter of the year under review, from 1.3 percent to 1.9 percent in what the report said was due to increased appetite for high-risk, high –return investment.
Investment in real estate stands at 2.2 percent of the total portfolio studied even as trend indicated that pension fund managers prefer to hold more in cash and cash equivalents as they scout for ad hoc investment opportunities.Analysts now foresee more large schemes getting into property, especially after the coming into effect of the Real Estate Investment Trusts (REITs). Despite the prevailing harsh economic terrain, all preferred investment sectors delivered profits.