About two years ago, the Nairobi Securities Exchange (NSE) launched the USP (Unquoted Securities Platform) which is an automated solution for the issuance and trading of securities of unquoted companies.
The platform offers world-class trading infrastructure and information services as well as enables companies to access capital markets for long-term funding through private placements and restricted offers.
Through the platform, small investors can also get to trade in unquoted companies at the NSE.
The real estate sector in Kenya is one of the areas that can benefit from the deepening of the capital markets, even though the development boom witnessed in the sector over the past decade is no more, with increased supply which has caught up with and surpassed demand, resulting in the current ‘buyer’s market’ with landlords having to contend with offering tenant incentives to boost occupancy.
The sector is also yet to recover from the effects of the Covid-19 pandemic which has put pressure on rentals and average rates in the office, residential, hotel, and retail markets, especially in Nairobi where the bulk of these developments are concentrated.
Despite this not-so-rosy picture of the sector, one of the investment products with the potential to deepen the capital markets and create wealth for ordinary investors is the Real Estate Investment Trusts, popularly known as Reits.
Reits are collective investment instruments in real estate where investors pool funds together and invest in a trust with the intention of earning profits or income from real estate, as beneficiaries of the trust.
Simply put, Reits allow individuals to earn rental income without the stress of building real estate, and the attendant pain of maintaining the property and managing tenants.
Investing in Reits is a great way to diversify one’s portfolio outside the traditional stocks and bonds as it provides attractive dividends and long-term capital appreciation. Reits are liquid as they trade on the USP platform where the seller is matched with the buyer.
Reits are also tax exempted hence the Reit manager is able to distribute additional returns to the investors. The regulator has provided that the managers must distribute up to 90 percent of their income to the investors in a Reit,
During a turbulent or even stagnant market phase, Reits are able to offer a steady dividend income and long-term capital appreciation making them deliver competitive total returns. This provides for diversification and reduces portfolio risks and increases returns to the investors.
So, if you are a small-scale investor who wishes to make good returns from real estate and do not have the capital to buy or build a house for rental income, Reits are the way to go.
Ms Ndirangu is the General Manager, Retail Investments at Acorn Investments: Email: [email protected]