{{ text }}

19 December, 2022

The Steps the Ruto Administration Should Take for Real Estate Investment Trusts (REITs) to Fund Housing

Real Estate Investment Trusts (REITs) are regulated collective investment vehicles that allow investors to contribute money for the acquisition of rights in a trust with the intention of earning profits or income from Real Estate as beneficiaries of the trust. Investors can purchase and sell shares of REITs on the stock market. Some of the benefits of investing in REITs include; i) Diversification, ii) Provide a stable and consistent income stream, iii) Are a flexible asset class, iv) Offer competitive long-term returns, v) Are liquid, and, vi) Entail beneficial tax reliefs, among others.

In 2013, Capital Markets Authority (CMA) put in place a REITs framework and regulations that developers can utilize to raise capital. However, only one – the ILAM Fahari I-REIT, is listed and trades on the Nairobi Securities Exchange’s Main Investment Market. On the other hand, Acorn I-REIT and D-REIT are not listed, but trade on the Unquoted Securities Platform (USP), an over-the-counter market segment of the NSE. In addition, LAPTrust Imara I-REIT is currently pursuing listing after it was granted approval by the CMA to list on the NSE’s Main Investment Market, under the Restricted Sub-segment. The table below highlights the four REITs authorized by the CMA in Kenya;


Cytonn Report: Authorized REITs in Kenya



Type of REIT

Listing Date

Market Segment



ICEA Lion Asset Management (ILAM)



October 2015

Main Investment Market



Acorn Holdings Limited

Acorn Student Accommodation (ASA) – Acorn ASA


February 2021

Unquoted Securities Platform (USP)



Acorn Holdings Limited

Acorn Student Accommodation (ASA) – Acorn ASA


February 2021

Unquoted Securities Platform (USP)



Local Authorities Pension Trust (LAPTrust)



November 2022

Main Investment Market: Restricted Sub-segment


Source: Nairobi Securities Exchange

Despite the above, Kenyan REIT market has been on a dismal performance since its inception in 2013. This comes at a time when only four REITs have been incorporated, with only one being listed on the NSE. As of 2021, Kenya’s REIT Market Capitalization to GDP stood at a significant low of 0.01% as seen below;

Source: European Public Real Estate Association (EPRA), World Bank

The performance is mainly attributable to various challenges subduing the market, namely; i) High Minimum Capital Requirement for a Trustee, ii) High Minimum Asset Size for Investment Companies, iii) High Minimum Investments Amounts iv) Adverse Conflicts of Interests with Trustees, v) Insufficient Investment Knowledge and Awareness of the REITs Market, and, vi) Lengthy Licensing and Approval Processes, among others.

We suggest the government considers the following recommendations to stimulate the REITs market;

  1. Education of Key Stakeholders and Decision Makers: All key stakeholders need to be educated on the REIT structure. For example, a recent market participant experienced difficulty getting a KRA PIN just because the agency did not understand what is a trust structure,
  2. Allow different legal entities for REIT formation: Just as it’s done in South Africa, different legal entities should be able to incorporate REITs. In Kenya only a trust is allowed to form a REIT. Other entities such as companies, partnerships, in addition to trusts should also be permitted,
  3. Introduce Hybrid REIT Vehicles: Though promising higher returns, there is a relatively high exposure to development risk for D-REIT investors brought about by the increasing costs of construction. Currently, investors have to subscribe to both of the separate REIT classes, forcing them to pay duplicate costs, due to the nature of exclusivity of the two. A hybrid REIT would provide investors integrated returns, by combining the higher return from development while reducing risk exposure through the relatively stable income component of the I-REIT. In addition, an IPO with such a hybrid REIT vehicle would eliminate the duplicated costs of running two separate REITs, thereby improving subscriptions by investors,
  4. Efficient approval structure: In order to streamline the approval process for Real Estate Investment Trusts (REITs), the approval structure should be combined into one agency, instead of the current two (CMA and KRA). Combining the approval structure into one approval structure would eliminate the need to go through two separate agencies for REITs approval, which would streamline the process by improving its efficiency, saving on costs, and increasing transparency and accountability,
  5. Reduce the amount of capital required for a REIT Trustee:  Reducing the amount of capital required for a REIT Trustee from Kshs 100.0 mn to match what is required for Pension Trustee, Kshs 10.0 mn, would broaden the pool of trustees by allowing more financial institutions to become eligible to serve as trustees. There are only 3 REITs Trustees compared with 11 for Pension Funds. This would increase competition by providing more choice for REIT Sponsors, allowing them to select a trustee that is more closely aligned with their objectives.,
  6. Remove the high minimum of Kshs 5.0 mn for D-REITs: The high minimums locks people out of the market. The minimums for more developed markets stand at about Kshs 100,000. It is not clear why Kenya’s minimum is 50 times the amount of developed markets, and 100 times the average median income of Kshs 50,000,
  7. Give time before requiring that a REIT must list in the public markets: REITs should be allowed to stay private for a while before listing. Companies are not comfortable listing from day one. For example, in the UK they are given 3 years before they are required to list, and,
  8. Reduce the bureaucracy required for REIT formation: It can take anywhere from 1 to 2 years to form a REIT due to the bureaucracy process. The CMA should make the REIT formation process more efficient thereby reducing time spent