REITs - Real Estate Investment Trusts: An Introduction
Real Estate Investment Trusts (REITs) are a popular investment vehicle for those who want to invest in the real estate sector without the hassle of buying and managing physical properties. In Kenya, there are two types of REITs: Development REITs and Income REITs with special Shariah compliant, Islamic REITs.
Development REITs (D-REITs)
Buy, develop, and construct projects, with the aim of selling units and sharing capital gains with shareholders.
Income REITs (I-REITs)
Invest in long-term real estate assets and offer dividends based on the performance of the properties in their portfolio.
Legal Framework Governing Real Estate Investment Trusts in Kenya
REITs are regulated by the Capital Markets Authority in Kenya. The legal framework governing REITs in Kenya was introduced in 2013, and it provides a framework for the establishment, operation, and management of REITs. This framework ensures that investors are protected and that REITs operate in a transparent and accountable manner.
📋 REITs Association of Kenya (RAK)
Promotes the growth of REITs in Kenya by establishing a development framework, creating engagement forums, partnering with other REITs Associations worldwide, and facilitating knowledge transfer and learning experiences.
How REITs Work in Kenya
When it comes to investing in a real estate investment trust (REIT), there are several key players involved in the process:
Owns shares in the REIT and is entitled to income and profits generated by properties.
Ensures REIT is managed according to stated objectives and in the best interests of unit holders.
Manages REIT's investments, including selecting properties and managing the portfolio.
Responsible for day-to-day management of properties, including maintenance and tenant management.
Creates the REIT and raises capital from investors.
📈 Case Study: Laptrust Imara I-REIT
- Promoter: Laptrust
- Trustee: The Co-operative Bank of Kenya
- Asset Manager: Sterling Reit Asset Manager
- Property Manager: Laser Property Services
- Properties: CPF Metro Car Park, Pension Towers, CPF House, Man Apartments, Nova Pioneer Eldoret, Freedom Heights Mall, and Freedom Heights Service Plot
📊 Investing in REITs is similar to investing in stocks.
An investor buys shares in a REIT and earns dividends and capital gains. Each REIT has a unique structure and different requirements.
- ILAM Fahari I-REIT: Traded on Nairobi Stock Exchange as a share
- Laptrust Imara I-REIT: Trading at KES 20.00, minimum investment KES 5,000,000
- Private Placement REITs: Minimum amount per share KES 4,000,000
Joining REITs in Kenya
Joining a REIT in Kenya is easy. Simply reach out to the REIT management or a licensed stockbroker to purchase shares. The minimum investment amount varies depending on the REIT, ranging from a few thousand to millions of Kenyan shillings.
Best REITs in Kenya
Taxation of REITs in Kenya
- REITs are subject to income tax, VAT, and withholding tax
- Exempt from income tax on property rental income if they distribute at least 80% of income to shareholders
- Exempt from VAT on the supply of real estate services
Returns on REITs in Kenya
- Acorn I-REIT: Declared dividend of KES 0.50 per share/unit (March 2023), price per unit KES 20.88
- Laptrust Imara I-REIT: Trading at KES 20.00, minimum investment KES 5,000,000
Challenges in Using REITs for Real Estate Investment in Kenya
Conclusion
In conclusion, REITs are a great investment vehicle for those looking to invest in the real estate sector in Kenya. With the legal framework governing REITs, investors are assured of transparency and accountability. Joining a REIT is easy, and investors can choose from a range of REITs with different investment requirements.
To learn more about REITs in Kenya and how to invest, reach out to the REIT management or a licensed stockbroker today. Investors should seek professional advice and consider their investment goals, risk tolerance, and investment horizon before investing in REITs.
📋 REITs Quick Reference
💰 Investment Requirements
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