The State has advanced plans for the creation of a real estate investment trust (REIT), bowing to demands by cash-flush pension funds which had listed it as a pre-condition to unlocking billions of shillings to finance President William Ruto’s dream affordable housing projects.
A REIT is a company that owns, operates, or finances income-generating real estate and offers investors both income and capital appreciation.
In the latest development, the Capital Markets Authority(CMA) yesterday announced that significant progress has been made towards the creation of a Kenya national REIT (KNR) in collaboration with Sanduku Investment Initiative, the Association of Pension Trustees and Administrators of Kenya (APTAK) and the Nairobi Securities Exchange (NSE).
“REITs have been identified by the national government as a critical avenue to ramp up the rollout of affordable housing units through a public and private sector partnership. Evidently, REITs have the potential to facilitate access to capital through the capital markets to meet the growing demand for purpose-built real estate solutions including for those at the bottom of the economic pyramid.” CMA chief executive officer Wyckliffe Shamiah said in a statement.
Pension funds through their lobby, the Association of Pension Trustees and Administrators of Kenya (APTAK) had in November last year issued demands to Dr Ruto to set up a national REIT saying it would provide a legal basis for engagement with the State that is eyeing its Sh1.55 trillion assets.
Affordable housing
“The pension industry can support and fund affordable housing in an end-to-end process through a legal entity. Our proposal which we have shared with the Head of State is the establishment of what we call the Kenya National Real Estate Investment Trust, which is backed by all major pension schemes and regulators to guarantee its legitimacy,” said APTAK chairperson Hosea Kiili said in November.
“We believe we need to get our REITS market vibrant and moving as it has happened in other jurisdictions. We propose that the national REIT will be the mobiliser of funds from the pensions industry as well as other subsidiary avenues like saccos. The REIT will aggregate our resources into a vehicle that will deliver the offtake guarantee required by the supply side of the market,” said Mr Kiili.
Pension funds also called for Value Added Tax exemption for inputs used in the affordable housing undertaking as well as exclusive provision of land and horizontal infrastructure, such as feeder roads, by the government.
Data from the Retirement Benefits Authority shows only 0.02 per cent of pension industry assets, translating to Sh370.0 million, under management are currently invested in the REITS market.
This makes REITS the smallest asset class in pension funds’ portfolio mix which is dominated by government securities at 45.7 per cent and quotes equities at 16.5 per cent.
