The Capital Markets Authority (CMA) of Kenya is proposing a significant reduction in the minimum subscription to a Real Estate Investment Trust (Reit) from Sh5 million to Sh100,000. This move aims to spur interest in Reits and make real estate investments more accessible to a wider range of investors. Introduced in 2013, Reits allow developers to raise funds for property development or unlock value from existing properties by selling rights to a portion of the rental income.
Reits are investment vehicles that enable individuals to invest in real estate without directly owning physical properties. They can be categorized into Development Reits (D-Reits), which raise money for new projects, and Investment Reits (I-Reits), which allow investors to benefit from existing properties. The proposed reduction in the minimum investment threshold is expected to democratize real estate investment and deepen the capital markets in Kenya.
This is not the first attempt by CMA to lower the minimum investment threshold for Reits. Three years ago, the regulator recommended a reduction to Sh10,000, but the proposal was not implemented due to a lack of legislative backing. The current proposal also includes a reduction in conversion fees for Reits, from up to Sh7.5 million to a standardized Sh150,000. This change aims to make it easier for issuers to convert their Reits.
The proposed changes are part of a broader effort to enhance the role of Reits in Kenya's affordable housing agenda. One of the recommendations includes lowering the percentage of property that can be held by the public from 25 percent to 15 percent. This adjustment is expected to encourage higher participation by corporate investors, such as pension funds and insurance companies.
Currently, there are three Reits trading at the Nairobi Securities Exchange, with two of them being dollar-denominated. The CMA notes that large investors often take significant stakes in properties, which can lead to ownership limitations. By reducing these limitations, the regulator aims to promote more flexible and efficient investment structures.
The CMA is also proposing to grant Reit managers the power to guarantee loans taken by their projects or special purpose vehicles. This change is expected to improve access to financing for Reits, as lenders are more likely to provide loans when there is a guarantee in place. The proposals come on the back of two successful Reits issued this year, which were oversubscribed, indicating strong appetite for the asset class.
The two Reits issued this year, ALP Investment Reit and Trific Green I-Reit, had subscription rates of 115 percent and 103.3 percent, respectively. These successful issuances demonstrate the growing interest in Reits among investors. The CMA's proposals aim to further capitalize on this interest and make Reits a more accessible and attractive investment option for a broader range of investors.
Key points
- The CMA proposes reducing the minimum Reits investment to Sh100,000 from Sh5 million.
- The proposals aim to make Reits more accessible and attractive to a wider range of investors.
- The changes include reducing conversion fees and granting Reit managers powers to guarantee loans.
