The Capital Markets Authority (CMA) has proposed to lower the minimum investment amount that professional investors can put in restricted real estate investment trusts (REITs) from Sh5 million per person to Sh10,000, in a bid to spur interest in the investments vehicle.
The lower threshold makes part of proposals by the markets regulator to raise the role of REITs in contributing to the government’s affordable housing agenda.
Current provisions place a minimum investment of Sh5 million for an investor to qualify to be categorised as a professional investor in a development REIT or restricted income REIT.
The current high investment threshold is aimed at restricting such offers to a relatively smaller group of “professional investors” who are deemed to be more likely to understand and handle the risks and opportunities of the fund.
Such investors include high-net-worth individuals and institutions such as pension firms and insurers.
There is, however, no regulatory minimum amount for investors pumping their money into unrestricted income REITs.
“CMA Kenya proactively submitted a number of policy incentives to support REITs through its annual policy memorandum to the Cabinet Secretary, National Treasury and Economic Planning in December 2022 and subsequently had discussions with the budget team to justify the proposals in March 2023,” said the CMA.
“The submissions include reduction of minimum subscriptions to REITs by investors from Sh5 million to Sh10,000 and extension of stamp duty on transfer of assets into a REITs.”
Reits refer to collective investment schemes in real estate that are structured as trusts where an investor owns rights or interest in the form of units and earn returns from income or capital gains.
Income REITs primarily derive revenues from property rentals while development REITs are in principle involved in the development and construction of properties for sale or letting out.
The move to lower the threshold for investor subscriptions is set to democratise participation by retail investors, reducing the concentration from a small pool of well-capitalised entities such as collective investment schemes, banks, underwriters, pension or retirement funds.
There are currently two listed Reits at the Nairobi Securities Exchange (NSE), the most recent entry being the Laptrust Imara I-Reit which was listed last month with a minimum subscription amount of Sh5 million.
Ilam Fahari I-Reit is on the other hand an unrestricted issuance— having embraced small investors with a minimum investment of Sh20,000 when it raised funds in November 2015.
Property developer Acorn in 2021`floated restricted income and development Reits towards the development of student housing, but these are not listed and instead trade on the over-the-counter (OTC) market.
