NSE opens doors to property-rich retirement funds

The Nairobi Securities Exchange (NSE) is set to open the stock exchange for pension funds holding large property portfolios to sell them in the proposed real estate market segment, potentially unlocking assets worth billions of shillings for trading at the bourse.

Eddy Njoroge, the NSE chairman, said the proposed real estate investment trusts (REITs) market segment would help pension fund managers to unlock liquidity of their property holdings.

“For pension schemes with exposure to large illiquid real estate assets, REITs will break them down into divisible shares that will be traded on the Exchange. This will among other things, enable pension schemes comply with the Retirement Benefits Authority (RBA) regulations,” said Mr Njoroge on Tuesday at the listing of NIC rights shares.

RBA regulations limit pension funds from holding more than 30 per cent of their assets in immovable property to ensure they are sufficiently liquid and able to meet the financial obligations such as payment of benefits to members.

The bulk of assets held by some schemes, especially those sponsored by State Corporations, consist of land and buildings.

The NSE is preparing for the introduction of REITs as an alternative investment vehicle that will provide investors with an opportunity to be part of the real estate sector.
Pension schemes for the Postal Corporation of Kenya, Kenya Railways and Kenya Ports Authority are among those that could use REITs to reduce their exposure to real estate assets by securitising the buildings they own.

Fred Nyayieka, the executive director of the Pension Advisory Kenya, says pension schemes could use REITs to reduce their exposure to the real estate assets and improve on liquidity.

“I expect the pension schemes could explore REITs as a means to comply with the regulations,” said Mr Nyayieka, adding smaller schemes will also gain access to property investments by buying shares of listed buildings that generate steady income in REITs.

Tom Odongo, the acting managing director of the National Social Security Fund (NSSF), said listing some of the buildings the public pension manager owns could be an option in complying with RBA investment guidelines.

“We would have no objection to REITs,” said Mr Odongo.

NSSF’s assets held in property is about 38 per cent of the entire portfolio estimated at Sh100 billion, partly due to a sharp appreciation of property prices and poor performance of the other asset classes in the last financial year.

Paul Muthaura, the acting chief executive of the Capital Markets Authority (CMA) said the draft REITs regulations have been completed and are now awaiting approval from the Finance minister before they are enacted into law.
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