CMA sets Sh1m minimum for real estate investors

Investors will be required to have a minimum of Sh1 million to buy shares of real estate development firms listed at the stock exchange, new rules proposed by the capital markets regulator have indicated.

The draft regulations released by the Capital Markets Authority (CMA) yesterday will pave the way for listing of Real Estate Investment Trusts (Reits) at the stock market, opening the lucrative sector to small investors.

The shares of real estate firms will be sold in equivalent stocks of Sh1 million each as per the proposals.

“An offer or an issue of units of Reit securities may be made as a restricted offer to professional investors and be offered in minimum subscription or offer parcels of one million Kenya shillings,” says the draft laws.

The regulations propose a classification of Reits into development and construction real estate investment trust (D-Reit) and income real estate investment trust (I-Reit).

D-Reits will be required to generate at least 50 per cent of income from gains made in developing, constructing or selling of real estate or income made from acquisition of property for rental income.

This type of Reits must also have real estate assets of at least Sh100 million. I-Reits will be required to have real estate assets of a minimum value of Sh300 million and will be required to invest at least 75 per cent of total assets in income producing real estate.

Africa Reits Ltd is the only firm operating this type of investments locally, but it is not listed at the securities exchange.

While proposing the introduction of Reits at the securities exchange, CMA chief executive Stella Kilonzo said that they would make it easier for Kenyans to access affordable housing by increasing funds available for real estate developers.

“The regulations to facilitate this are at an advanced stage of being finalised to be gazetted at the earliest opportunity,” said Mrs Kilonzo Thursday.

Kenya has an annual shortage of 150,000 houses against construction of 30,000 units. The draft law limits the size of parcels or the equivalent of shares to be traded, but leaves it open for individuals to marshall funds and buy securities. The rules say “an individual, either alone or with any associates of that individual on a joint account, with proven liquid assets as may be prescribed by the Authority from time to time, or its equivalent in any foreign currency,” may buy the shares.

The regulations also define a professional investor as any person licensed by the CMA, a legitimate scheme, a company, partnership and also a group of individuals.

Property developers said that the proposal to have the investments sold in chunks of Sh1 million will increase efficiency in regulating the securities.

“This is done mainly because of administration issues, decisions such as revenue and dividend re-distribution have to be done on an annual basis and too many investors would present challenges,” said Moses Wekesa, the chief executive of property firm Grade East Africa.
Parallels can be drawn between Reits and unit trusts, which are bought and sold in units of a given value.

Similar to unit trusts, the Reits will hold assets for owners or investors-- which in this case is real estate, and the investors will earn profits and dividends from the investments.