CMA offers tax waiver on listed real estate sales

Property developers could be granted a tax-free exit from their investments in new laws expected to facilitate listing of real estate at the stock market.

Draft Real Estate Investment Trust (Reit) regulations prepared by the Capital Markets Authority (CMA) could see investors who list their property at the bourse sell their shares without paying the four per cent stamp duty levied on such transactions.

Real estate investors will have the chance to sell their property to the public through the Nairobi Securities Exchange once the draft rules are passed into law.

This is one of the amendments made to the draft regulations on Reit that will be presented to the Finance minister for gazettement.

“Where a promoter of a Reit or other investors in a Reit scheme transfer real estate assets into a Reit Scheme, then the transferred assets will be exempt from stamp duty,” reads part of the regulations proposed by the CMA.

The provisions provide a window for real estate investors to unlock the capital gains that have been accrued from a decade-long boom in Kenya’s property sector.

Stamp duty is ordinarily the single largest transaction expense item on the list of closing costs in real estate transactions.

The rationale in the proposal to waive stamp duty, according to the CMA, is to provide an incentive for big investors who own rental property to allow retail investors become part-owners in the lucrative letting business.

To qualify for a Reit scheme, promoters will be required to have rental property worth at least Sh300 million that is already generating rental income, where the finer details on tenancy and projected stream of earnings will be contained in the information memorandum.

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“Such incentives have been proposed to encourage the big real estate investors to embrace the newest asset in the market, while allowing retail owners to enjoy returns from the property sector,” said Kung’u Gatabaki, the CMA chairman.

Mr Gatabaki says that small investors have been locked out of the property market owing to the high barriers to entry, a situation that would be eliminated with the introduction of Reits in the capital markets.

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Under the Reits arrangement, an independent valuation which be conducted to determine the worth of the rental property before the owner is allowed to sell a portion or the entire building to the market in the form of shares.

A two-year lock-in period has been proposed where the promoter of the investment (buildings earning rental income) is required to hold a minimum of 20 per cent stake in the first year and 10 per cent by the end of the second.