Housing trusts plan fails to get off the ground

Two years ago, Real Estate Investment Trusts (REITs) were proposed as the solution to Kenya’s housing woes.

They were expected to provide an answer to all housing issues— from providing a new investment vehicle for returns seekers— to being an innovative avenue of raising cash for housing projects.

In their basic form, REITs are collective investment vehicles that buy and manage income property and mortgage loans and their shares at a stock exchange.

At a time when property prices were showing little signs of easing, REITs were a compelling proposition for both investors and property market players.

And since then, real estate growth remains unrelenting.

But two years on, no regulation has been passed for REITs to start operating in the country.

Consultations between market players— the Capital Markets Authority (CMA) and the Treasury— have so far yielded no fruits for market players.

And they blame this failure on the law governing taxation of property attached to collective investment vehicles.

With rental income categorised as a taxable item, how the Kenya Revenue Authority (KRA) hopes to get its dues remains hazy.

A similar dilemma faced unit trust providers.

Failure by some fund managers to charge withholding tax from their clients’ earnings is linked to differences in the interpretation of Section 20 of the Income Tax Act.

The law spells out withholding tax chargeable on unit trust returns which some providers misread and now find themselves facing KRA penalties and fines running into hundreds of millions of shillings.

The unit trust service providers on KRA’s list were last week said to be preparing a vigorous defence of their tax actions, citing the vagueness of the relevant law but analysts said the cost implication would eventually be passed on to the investors.

The last draft of the laws governing REITs was reportedly handed over to the capital markets regulator back in 2008.

The overwhelming feedback on the proposed REITs laws which was collated from capital markets players by advisory firm Vista Capital forced the CMA to head back to the drawing board with a view of sealing loopholes in the operation of investment trusts.