What Are REITs And What Does It Take To Invest In Them?

Kenyans love for real estate has proven to be a very costly affair. Real estate in Kenya has been traditionally perceived to be acquiring land or building rental properties for residential or commercial use. However, these types of Real estate investments have come at a price hence affecting our love for them.

One of the downsides of owning land or property in Kenya is liquidity. You cannot access hard cash on a property in time of need, another issue is rental income is affected by tenancy/occupancy, you also have maintenance costs, property taxes, renovations that are borne by the landlords.

Kenyans have also been victims of getting rich quick schemes that have left many buying breaths of air as land and we have seen in the media how these schemes end up

What are REITs?

REITS in layman’s terms means-become a landlord with no headache. Real estate Investment Funds in simple terms are licensed investment vehicle which invests and finances income-generating real estate.

In the developed world most REITS INVEST IN residential buildings, commercial offices, Malls, hospitals, or even the Hotel industry.

The funding is derived from a pool of funds from different individuals/investors who invest in the REIT  and in return the investors earn dividend income and capital gains from the investment.

Types of REITS in Kenya

D-REIT -DEVELOPMENT RIETS, purely for development purposes and mostly targeting the institutional clients, high minimum investment required 20 million shillings plus with a lock-in period 5-7years, offered to pension schemes, charitable trusts, SACCOs, corporates, fund managers, and so on.

I-reits-Income reits purely invest ib income-generating properties targeting individual clients, minimum investment 5,000 shillings, no lock-in period, and tradable in the NSE hence quick access to your funds when you need. Chamas are also invited to participate in such.

REITs are managed professionally by a team of developers, property managers, and REIT managers to ensure returns are delivered to the investors

A good example of REITS is the Acorn Students Accommodation Reits that are listed on the Nairobi Securities Exchange and owns the QWETU STUDENT HOSTELS.

For a minimum of 5,000 shillings, one gets to own a piece of the QWETU STUDENT HOSTELS and earn dividends income from the rental income generated from their 6 student hostels in Nairobi region.

They have the fund manager/reits manager as Acorn investments management limited ensuring that the returns are delivered to the clients

How does one invest? The reits are offered by different fund managers, for example, the Acorn i-reits is offered under the VUKA investment platform through an invite by a fellow investor.

It is currently worth investing in reits?

Yes, it is a worthwhile investment to take due to the below benefits such as:

Diversification: All investments vehicles ie REITs, fixed income securities, and equities have different long-term investment characteristics creating diversification when combined within a single portfolio. Hence REITS give an opportunity to enter into the Real estate at an affordable minimum for all.

Transparency: Investors are able to understand exactly what they are invested in, in terms of actual assets, costs, and returns.

Consistent income: I-REITs are required by law to payout at least 80% of their income to unitholders in the form of dividends.  Consequently, they generate a  stable and consistent income stream for investors. This takes on special significance for income-oriented investors e.g., when one retires.

Liquidity; Unlike physical land or building, REITS allow an investor to buy units rather than the entire asset and it is easier to sell these units wholly or partially as they are tradable.

Tax exemption: A REIT is exempt from corporate taxes, capital gain tax, and stamp duty. This allows more income to be available for distribution, upon payment of dividend, the dividend income is taxed at 5% for residents and 10% for nonresidents in Kenya.

Professional management: Access to the professional team of investment management, property management, and development management to handle acquisition and management.

Read More: Investing in REITs – The Options, and How the Kenyan Market Works