Real Estate Investment Trusts, REITs, as an Investment Alternative

By Cytonn Investments / December 31, 2019 | 9:34 am



Home Ownership

REITs are regulated investment vehicles that enable collective investment in real estate, where investors pool their funds and invest in a trust with the intention of earning profits or income from real estate.

REITs source funds to build or acquire real estate assets, which they sell or rent to generate income, which is then distributed to the shareholders at the end of a financial year. There exist three types of REITs namely;

  1. Income REITs (I-REITs) – This is where investors pool to acquire long-term income-generating real estate including residential, commercial and other themes,
  2. Development REITs (D-REITs) – A D-REIT is a type of REIT in which resources are pooled together for purposes of running development and construction projects, and,
  3. Islamic REITs – An Islamic REIT is a unique type of REIT that invests primarily in income-producing, Shari’ah-compliant real estate.

REITs are beneficial to both developers and investors, with developers getting easier access to relatively lower cost capital, allowing them to develop institutional grade real estate.

The benefits of REITs for Investors include;

  1. Portfolio Diversification – REITs, fixed income securities and equities have different long-term investment characteristics creating diversification when combined within a single portfolio,
  2. Low Cost Exposure to Real Estate – REITs offer access to the property market with professional investment management at a relatively low transaction and management cost,
  • Transparent Investment Vehicle – Investors are able to understand exactly what they are invested in, from the actual assets, costs and returns,
  1. Accessibility – A REIT can more easily be bought or sold. Investors do not have to deal with the complexity of selling a physical property,
  2. Tax Exemption – REITs in Kenya have a number of tax benefits such as corporate tax exemption and stamp duty exemption,
  3. Liquidity – REITs offer a liquidity advantage over direct investment in privately traded underlying real estate assets, and,
  • REITs Deliver Income & Long-term Growth – Excellent long-term performance and strong diversification attributes make REITs a natural component of a well-balanced efficiently performing portfolio,

There are a number of factors that have led to the slow development of the REIT market in Kenya.

These include; (i) inadequate investor knowledge, with most potential investors not fully understanding the REIT structure, and thus shying away from it altogether, (ii) negative investor sentiments, given the poor track record left by the existing REIT, (iii) narrow pool of trustees, given the restrictions placed by regulators, (iv) the high minimum amount investable in D-REIT schemes, which restrict majority of investors from putting in their money, (v) capping of interest rates, which affect the real estate sector performance, (vi) shallow investment-grade asset pipeline, and (vii) inconsistent income given the uncertainty associated with the real estate market.

The REIT Market in Kenya has potential for growth, but this will only be possible if a supportive framework is set up.

To revitalise the REIT market following measures can be implemented; (i) teaming up of the market players and the regulators to offer training to the investing public, (ii) broadening the pool of trustees to include corporate trustees and individuals, (iii) reducing the minimum investment to a reasonable level, (iv) development of institutional grade real estate assets that REITs can invest in, (v) continuous improvement on the regulation and government support of REITs, and (vi) collaboration of key players in the real estate and investment sectors will play a major role in harnessing broad support with regards to issuance of REITs.

It will require the collective efforts of key industry players to create a success story for REITs in Kenya with the most important being implementation of measures to increase public awareness and educate the masses on REITs as an asset class.

To read more on this, please see the full report here.







More Articles From This Author







Trending Stories










Other Related Articles










SOKO DIRECTORY & FINANCIAL GUIDE



ARCHIVES

2020
  • January 2020 (272)
  • February 2020 (310)
  • March 2020 (390)
  • April 2020 (322)
  • May 2020 (336)
  • June 2020 (68)
  • 2019
  • January 2019 (253)
  • February 2019 (216)
  • March 2019 (285)
  • April 2019 (254)
  • May 2019 (272)
  • June 2019 (251)
  • July 2019 (338)
  • August 2019 (293)
  • September 2019 (306)
  • October 2019 (313)
  • November 2019 (362)
  • December 2019 (320)
  • 2018
  • January 2018 (291)
  • February 2018 (219)
  • March 2018 (278)
  • April 2018 (225)
  • May 2018 (238)
  • June 2018 (178)
  • July 2018 (256)
  • August 2018 (249)
  • September 2018 (256)
  • October 2018 (287)
  • November 2018 (284)
  • December 2018 (185)
  • 2017
  • January 2017 (183)
  • February 2017 (194)
  • March 2017 (207)
  • April 2017 (104)
  • May 2017 (169)
  • June 2017 (205)
  • July 2017 (190)
  • August 2017 (195)
  • September 2017 (186)
  • October 2017 (235)
  • November 2017 (253)
  • December 2017 (266)
  • 2016
  • January 2016 (165)
  • February 2016 (165)
  • March 2016 (190)
  • April 2016 (143)
  • May 2016 (245)
  • June 2016 (182)
  • July 2016 (271)
  • August 2016 (248)
  • September 2016 (234)
  • October 2016 (191)
  • November 2016 (243)
  • December 2016 (153)
  • 2015
  • January 2015 (1)
  • February 2015 (4)
  • March 2015 (166)
  • April 2015 (108)
  • May 2015 (116)
  • June 2015 (120)
  • July 2015 (148)
  • August 2015 (157)
  • September 2015 (188)
  • October 2015 (169)
  • November 2015 (173)
  • December 2015 (207)
  • 2014
  • March 2014 (2)
  • 2013
  • March 2013 (10)
  • June 2013 (1)
  • 2012
  • March 2012 (7)
  • April 2012 (15)
  • May 2012 (1)
  • July 2012 (1)
  • August 2012 (4)
  • October 2012 (2)
  • November 2012 (2)
  • December 2012 (1)
  • 2011
    2010
    2009
    2008
    2007
    2006
    2005
    2004
    2003
    2002
    2001
    2000
    1999
    1998
    1997
    1996
    1995
    1994
    1993
    1992
    1991
    1990
    1989
    1988
    1987
    1986
    1985
    1984
    1983
    1982
    1981
    1980
    1979
    1978
    1977
    1976
    1975
    1974
    1973
    1972
    1971
    1970
    1969
    1968
    1967
    1966
    1965
    1964
    1963
    1962
    1961
    1960
    1959
    1958
    1957
    1956
    1955
    1954
    1953
    1952
    1951
    1950