REITs is a form of investing in real estate without necessarily buying the actual property. REITs originated from the USA in 1960 as a means to tokenize Real Estate investment and make it available to many.
There are two types of REITs i.e.;
- Equity REITs : – This is where investors invest in Trusts from income generation real estate i.e., rental income or lease.
- Mortgage REITS : Investing in real estate loans over time – This is not very popular as the risks are higher.
The inception of REITs in Kenya came up in the late 2000’s with the sand boxing of the ILAM Fahari REIT. Equity REITs are the dominant vehicles in the country having been divided in two forms;
Development REIT (D-REIT) which is a high net worth pool for raising development capital. This is not retail but corporate oriented as the minimum investment is usually in the millions.
Income REITs on the other hand are the retail form of real estate investment and is what will drive most of this column. They feature investments from as low as KES 5000 with a minimum trust investment of KES 50000.
REITs have become the ideal investment vehicle for most Kenyans based on the minimum initial investment value and the ease of joining being that they are over the counter stocks. REITs have offered an affordable way to enter the real estate market with options that provide the least minimum investment unlike actual purchases where you require a lot of savings or bank financed capital to invest. It is therefore opening up the opportunity to the bottom of the market pyramid to put some capital into the real estate space.
They are regulated by the Capital Markets Authority – In Kenya, these are the regulatory and control offices that guard every ounce of capital investment within Kenya’s stock market. Every investment product must be sand boxed by the CMA before the public can take it up. This has given the investors some comfort and assurance of their investments therefore driving more confidence. Some of the CMA listed I-REITs include ; The ILAM Fahari REIT by ICEA and The ACORN IREIT popularly known as VUKA. VUKA was coined from the possibilities that the product offers that enable the investors move from one economic class to the other with ease.
REITs offer flexible investment solutions in that you can access your funds at needed time because its an online based investment vehicle. This comes in handy when registering and vetting the products as your profile always summarizes your investment and daily growth trajectory.
Other wins by the REITs include the fact that you don’t need a broker or a CDSC account to trade units hence delivering a straight forward process. This gives you an edge over your dividends because of reduced fees. Income generated from REITs pooled properties are tax except and that adds to profitability by the REIT manages and asset holders eventually trickling down to the investor with a guaranteed dividend payment. The law also provides that 80% of the income generated by these pooled properties MUST be paid out as dividends to investors. This ensures that the bi annual dividend payments are guaranteed and every investor gets a piece based on the amount of capital within the REIT.
REITs in as much as it has not been explored by majority, could be a beautiful vehicle to grow capital in the medium investment period of below 5yrs. With a guaranteed growth of an average 11% on capital gains and dividend yields, it offers a good opportunity to grow capital as you scale up the capital markets. With the growth of towns, academic opportunities and need for accommodation and business spaces, we will see a number of other REITs as the rental economy keeps growing.
The government’s push for affordable housing will enlarge the base of the pyramid to introduce new investors into the REIT market. This will drive more capital into the REIT pools and growth of opportunities for even bigger dividend yields. The expansion of the fintech space will also get more investors joining the platforms and growing in financial knowledge.
As a young investor with not much capital to invest, you might want to start your real estate and stock investment journey by picking on your preferred income REIT.
