Kenya’s REITs market poised for boom

By Steve Umidha

A new bidding war is breaking out in real estate sector and the targets of attention aren’t ordinary investors, but something more fashionable; ‘professional investors.’

The investors will need a minimum of Sh5million to invest in Kenya’s first Development Real Estate Investment Trust (D-REIT) launched yesterday to finance the development of a Sh3.7billion project.

This comes barely three months after Capital Markets Authority (CMA) granted approval for the issue and listing of Capital Fusion’s commercial and a residential D-REIT, five months following another approval to Stanlib’s Fahari Income-Real Estate Investment Trust (I-Reit) in November 2015.

Capital Fusion’s D-reit targets to raise Sh2.3billion for investing in the property development.

The cash raised through the offer is to be used to put up Greenwood City – an upscale high potential development in Meru County that consists of a shopping mall, office block and apartments to tap into the growing middle class in the region. The firm has already invested Sh800million through bank loans.

Capital Fusion will sell the D-Reit in units of Sh23 and investors will need to buy units worth not less than five million shillings to participate in the initial public offering (IPO).

“The offer is open to professional investors only who will have a chance to access development returns in Kenya by investing in property development through this new concept, a first in the region,” said Luke Kinoti, the chief executive of Fusion Capital Group.

A D-reit is a tax-efficient, listed collective investment instrument that allows investors to pull capital to develop large scale real estate units.

The D-REITs are traded on the Nairobi Securities Exchange (NSE) like any other listed security and the investors benefit from capital appreciation during the listing and construction window.

Economists say the concept could boost the country’s property market while at the same time detecting true value of property and determine exact value of underlying property asset and similar units.

NSE boss Geoffrey Odundo implied that the new concept would gain huge appetite and traction compared to the previous REIT that saw Stanlib’s Fahari I-Reit ‘miss’ to meet its original target.

“We are confident the new instrument will go a long way in quenching the thirst for Real Estate Investment in this market, which is another opportunity for our investors to diversify their portfolio,” he said.

Fahari managed to raise under one-third of the targeted Sh12.5 billion in what market observers blamed on competition from other instruments and low awareness of the concept.

The Fahari I-reit managed to raise Sh 3.6billion through the offering despite calling the process a success in a notice since it exceeded the minimum of Sh2.6billion target.

The poor market response saw International Finance Corporation (IFC) cut investment to just Sh684million compared to Sh 1.53billion it had earlier proposed to invest in Fahari’s I-REIT. IFC later said the change was to match other investors.