Are REITs a Good Investment in Kenya? A Comprehensive Guide and Analysis

Real estate investment has long been considered a lucrative wealth-building strategy, and the Kenyan market offers a wealth of opportunities.

As the market evolves, one investment avenue gaining significant attention is Real Estate Investment Trusts (REITs).

In this comprehensive analysis and guide, we will explore whether REITs are good investments in Kenya and provide you with a detailed understanding of this investment option.

Understanding REITs

Real Estate Investment Trusts, commonly known as REITs, are investment vehicles that pool funds from multiple investors to invest in various types of real estate assets. These assets can include commercial properties, residential properties, and infrastructure.

The purpose of REITs is to provide regular income and growth potential to investors by generating revenue streams primarily from rental income and capital appreciation.

Investing in REITs offers a range of benefits.

Firstly, it allows investors to diversify their real estate holdings across different types of properties and locations without the need to directly own or manage them.

This diversification helps mitigate the risks associated with investing in a single property.

Secondly, REITs provide liquidity as they are traded on stock exchanges, allowing investors to buy and sell shares easily.

REITs are managed by professionals with expertise in real estate, relieving you the individual investor of the responsibility of property management.

In Kenya, there are two kinds of REITs, depending on their purpose and activities. They are:

• Development REITs (D-REITs): These are REITs that invest in developing and constructing new real estate projects, such as residential, commercial, or industrial buildings.
• Income REITs (I-REITs): These are REITs that invest in owning and operating income-generating real estate properties, such as offices, malls, hotels, or apartments.

Each type of REIT offers different risk-return profiles, allowing investors to choose according to their investment goals and level of risk.

Evaluating the Kenyan REITs Market

The shape of the real estate market has a significant impact on the performance of REITs. Factors such as market demand, rental yields, and property values play a vital role.

The market has also faced challenges, such as oversupply in certain segments and uncertainties surrounding government policies. It is essential to evaluate the market conditions and the impact they may have on REIT investments.

Historically, Kenyan REITs have shown promising returns for investors. Investing in well-performing REITs can provide stable dividend income along with potential capital appreciation.

However, it is important to consider the risks associated with investing in REITs, such as market fluctuations, changes in rental demand, and interest rate fluctuations. Understanding these risk factors can assist investors in making informed decisions.

Kenya has recognized the potential of REITs as an investment vehicle and has put in place regulations and legal frameworks to govern their operations.

The Capital Markets Authority (CMA) regulates REITs in Kenya, ensuring investor protection and promoting transparency in the market.

These regulations provide a level of confidence to investors, further strengthening the investment case for REITs.

Available REITS in Kenya

The NSE currently has two listed REITs:

Laptrust Imara I-Reit and Ilam Fahari I-Reit.

• Laptrust Imara I-Reit was launched in August 2023 and focuses on commercial office spaces. It has a minimum subscription amount of Sh5 million.
• Ilam Fahari I-Reit was launched in November 2015 and focuses on retail and hospitality properties. It has a minimum investment of Sh20,000.

In addition to these two, there is the over-the-counter (OTC) platform which currently has two non-listed REITs: Acorn Student Accommodation I-REIT (ASA I-REIT) and Acorn Student Accommodation Development Real Estate Investment Trust (Acorn D-REIT). These REITs are sponsored by Acorn Holdings, a student housing developer in Kenya. ASA I-REIT owns and operates completed student accommodation projects, while Acorn D-REIT funds the development of new projects.

Investing in REITs in Kenya

One can invest in ASA iREITs through a flexible and affordable plan with as low as Sh4,500 per month or Sh50,000 per year. You can also choose higher plans that range from Sh100,000 to over Sh1 million per year.

To invest in listed REITs, you need to open an account with a licensed stockbroker. You can then buy or sell units or shares of REITs through the broker. The minimum number of units you can buy or sell is usually 100.

Return on Investment (ROI) of REITs

The return on investment in REITs in Kenya depends on the performance of the underlying properties and the market conditions. Generally, REITs in Kenya offer returns ranging from 8% to 12% per annum. You can also benefit from capital appreciation if the value of the properties increases over time.

REITs vs. Other Investment Options in Kenya

When considering investment options, it is important to compare the pros and cons of REITs here in Kenya alongside other alternatives. Direct real estate investments, stocks, and other asset classes may have varying risk-return profiles and entry requirements that need to be taken into account.

Direct real estate investments offer the advantage of more control over the investment and the potential for higher returns. However, they require significant capital and involve the responsibilities of property ownership and management. Additionally, the illiquidity of direct investments can limit the ability to quickly exit or rebalance the investment portfolio.

Stocks provide investors with the opportunity to gain exposure to the real estate sector through real estate companies listed on the stock exchange. However, the performance of these stocks can be influenced by various factors, including the overall stock market performance and the financial health of the specific companies in which the investor is invested.

REITs, on the other hand, offer a combination of benefits such as diversification, liquidity, and professional management, without the need for large capital outlays.

They provide access to a diversified real estate portfolio, which can enhance the stability of investment returns.

By analyzing the risk factors, potential returns, and ease of entry into each investment option, investors can make an informed decision that aligns with their investment goals and risk tolerance.

Conclusion

In conclusion, investing in REITs can be a viable option for individuals looking to diversify their investment portfolio and gain exposure to the Kenyan real estate market.

Throughout this comprehensive analysis and guide, we have explored the benefits, risks, and long-term viability of REITs in Kenya and hope to have answered the question "Are REITs Good Investments in Kenya".

Additionally, analyzing the current state of the real estate market, understanding the potential returns and risks, and considering expert opinions can help investors make informed decisions.

It is crucial to conduct further research, review the financial statements of individual REITs, and seek professional advice before making any investment decisions. By doing so, investors can navigate the Kenyan real estate market with confidence and potentially reap the rewards offered by REITs.