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Kenya’s Real Estate sector has been one of the fastest-growing sectors of the economy over the past years, growing at a compound annual growth rate of 6.4% in the past 6 years. With the onset of the COVID-19 pandemic, the sector realized a slowdown in activities with the most affected investment classes being the hospitality sector brought about by a decline in tourism arrivals and the commercial office sector, which saw people adopting the working-from-home initiative coupled with an oversupply of 6.7 mn SQFT as of 2021. As the real estate sector recovers from the pandemic effects, key challenges such as inadequate access to development financing still persist as most developers rely on bank loans as their main source of funding despite lower lending levels witnessed in Q4’2021. The gross loans advanced to the Real Estate sector decreased by 1.5% to Kshs 456.0 bn in FY’2021, from Kshs 463.0 bn in Q3’2021 according to the Quarterly Economic Review Report October-December 2021, by the Central Bank of Kenya. The over-reliance on traditional sources of financing real estate projects such as debt financing continues to be a challenge mainly due to difficulty in accessing credit loans, coupled with the burden of being in debt. To address the funding gap, Real Estate industry players have been focusing on exploring alternative ways of financing Real Estate Developments such as Real Estate Investment Trusts.
Investment

REITs finally proving an attractive vehicle for Kenyan investors

Investors who buy REITs are buying an individual real estate investment trust. However, investors who buy REIT ETFs buy a portfolio of REITs, giving them instant diversification. This creates a guarantee for big dividends, and a bit more reliability for shareholders than smaller or growth-oriented names that don't generate material profits. REITs are incredibly attractive to many investors in 2022 because of these factors.

By Steve UMIDHA

By Steve UMIDHA

Kenya’s pursuit for Real Estate Investment Trusts (REITS) to become debt market of choice, is gradually appeasing investors after years of lukewarm market reception since the concept’s launch nearly 10 years ago.

In 2013, Kenya became the third African country behind the likes of South Africa (SA) to establish REITs as an alternative means for financing real estate projects. NSE-listed Ilam Fahari I-Reit pioneered the concept.

But muted demand has dented the country’s hopes in positioning the financing model to become the debt market’s benchmark of choice, 9 years since its hyped takeoff.

A REIT is a company that owns and typically operates income-producing real estate or related assets. These may include office buildings, shopping malls, apartments, hotels, resorts, self-storage facilities, warehouses, and mortgages or loans.

Today, Kenya has three authorized Real Estates Investment Trusts in Kenya, namely; ILAM FAHARI I-REIT, Acorn Development Real Estate Investment Trust (Acorn D-REIT) and Acorn Income Real Estate Investment Trust (Acron I-REIT).

Latest figures show that in the Unquoted Securities Platform, Acorn D-REIT and I-REIT closed the month of September 2022 at S 23.8 and Sh0.8 per unit, respectively.

The performance represented a 19.0 percent and 4.0 percent gain for the D-REIT and I-REIT, respectively, from the Kshs 20.0 inception price – an indication that the market is gradually appeasing investors who were previously doubtful on such investment vehicles.

The volumes traded for the D-REIT and I-REIT came in at 5.5 Million and 14.5Million shares, respectively, with a turnover of Sh117.0 million and Sh 300.3 million, respectively, since its Inception in February 2021.

 

Steve UMIDHA 4584 posts 1 comments

Steven Umidha is a data and financial journalist with over 14 years of work experience in journalism and communication.

He specialises in finance and economics reporting as well as on the causes, impacts, and solutions of global warming, conservation, pollution and sustainability, often blending scientific literacy with journalist ethics, while involving policy analysis and multimedia storytelling across various platforms in highlighting issues from biodiversity loss to ecological justice.

Besides being the Founder of Financial Fortune Media, Umidha has previously worked with the Standard Media Group, Mediamax Networks LTD, bird story agency, Business Journal Africa, and Financial Post among other outlets.

Email: info@financialfortunemedia.com

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