The Capital Markets Authority and property investors are lobbying the government to reinstate the exemption of Real Estate Investment Trusts (REITs) from paying stamp duty when they are acquiring assets.
ILAM Fahari I-REIT, which focuses on holding properties for income and was recently delisted from the Nairobi Securities Exchange, says the industry has faced substantial costs since the exemption expired in December 2022.
Stamp duty is paid by the buyer on the transfer of properties, leases, and securities.
The law stipulates that to transfer immovable property, one is charged a stamp duty at a rate of four per cent in urban areas and two per cent in rural areas.
For REITs, the stamp duty paid runs into millions of shillings when high-value property is being purchased.
"Among the latest changes is the exemption of stamp duty when acquiring assets for the REITs, which expired in December 2022,” ILAM Fahari says in its latest annual report
“The CMA together with the REITs’ industry players are lobbying for reinstatement of the same," the property fund added.
Reinstatement of the exemption will make it cheaper for the property funds — to buy more properties.
REITs can either be classified as D-REITs (Development REITs which build properties to sell for capital gains) or I-REITs (Income REITs which hold properties for income).
The investment vehicles make it easier for individuals and institutions to pool funds and invest in the property sector through fractional ownership in the form of units (shares).
The biggest advantage attached to REITs is that they enjoy highly favourable tax benefits such as exemptions from income and capital gains taxes.
“The REIT manager and trustee mitigates these tax risks by, firstly, monitoring and taking proactive action to help ensure that the REIT remains compliant with tax registration requirements,” ILAM Fahari said.
