The launch of the first Real Estate Investment Trusts has come as a reprieve to Kenyans abroad who have, for years, been swindled.
Diaspora Services Ltd, a firm that promotes and markets local investment opportunities to citizens in foreign countries, said those remitting cash into the lucrative real estate sector have been caught up in shady deals.
Fund manager Stanlib on October 22 put on sale 625 million units priced at Sh20 a piece, in an ongoing initial public offering through Thursday, next week.
The offer is targeting to raise between Sh2.6 billion and Sh12.5 billion to be invested in prime retail, mixed-use, office, residential, hospitality, industrial and specialised developments.
Stanlib has so far identified three commercial properties in Nairobi where the minimum subscription of Sh2.6 billion will be invested.
The firm is going to buy the Greenspan Shopping Mall in Donholm, which has 173,353 square feet of lettable space, for Sh2.04 billion.
About Sh211 million will be invested in Bay Holdings [27,329 square feet space] in Industrial Area, which is fully let with a bank among the tenants. Stanlib will also pump Sh107.1 million into three-storey, 8,489-square foot Highway House along Pokomo Road, also fully let.
Under its investment plan, the ceiling for investment into office and retail space is 75 per cent of the total portfolio, and 15 per cent each for the remainder of the real estate sub-sectors.
The diaspora has been allocated a fifth, or 125 million units, targeting to raise Sh2.5 billion in the debut offer in East Africa.
DSL is the placing agent for the sale of the Stanlib Fahari investment REIT abroad.
“They [diaspora] are very excited and keen on it [REIT] because it is a regulated investment and the risk is very low,” DSL CEO Rebecca Karanja said on phone from Ghana where she is attending a diaspora investment conference. “Most of them have been conned by relatives and friends especially in land and house-buying deals, and they see this as a better way to invest in the real estate market.”
Karanja said enquiries have been “overwhelming” following an investment forum in London a fortnight ago. The workshop was hosted by DSL and Stanlib and graced by Kenya's High Commissioner Lazarus Amayo.
She said the depreciation of the shilling by 12.42 per cent year-through-Monday's 101.97 units against the dollar, has made the offer even more attractive.
This is because they are spending fewer dollars to buy products of the same value compared to the beginning of the year.
“The good thing about Kenya's diaspora is that they are well networked. So when those in London hear about an opportunity, they spread the word to their friends in the US and elsewhere,” Karanja said.
Diaspora remittances have overtaken tea, tourism and horticultural earnings to become Kenya's biggest source of foreign exchange.
The minimum investment in Fahari I-REIT is Sh20,000 [about $200] and Sh1 million [about Sh9,806].
Retail investors in East Africa have been allocated a quarter of the units, while institutional investors can buy as much as 55 per cent of the units.
“The most attractive returns in this market are in real estate and private equity,” head of private equity-real estate at Cytonn Investments Shiv Arora said. “So what the REIT does is that it improves access for the retail investors to the same amount of returns which are available in real estate, but at a lower amount and it is also regulated.”
The floating of the first REIT, after the regulations were effected in 2013, has been seen as a way of opening the highly illiquid real estate sector. The sector is largely controlled by a few individual high net-worth and institutional investors.
“If you looked at the real estate before, it was inaccessible to the retail investors,” Arora said. “Anyone who had to access the real estate in this market either had it through their own development or partnered with a developer which always require a lot of money.”
He however called on the industry players to enhance public education on the structure of the REITs, saying many investors still look at them as sophisticated products.
While the I-REITs allow investors to acquire and invest in existing commercial or residential property for a regular income, a development REIT enables them to buy land and put up new properties for sale or conversion into an I-REIT.
Capital Markets Authority acting chief executive Paul Muthaura said the regulator was processing an application for a D-REIT.
“For a long time, developers have had to go to negotiate with banks with very great uncertainty on the offtake when they are raising capital,” he said. “With the introduction of development REITs, we will have a more structured and transparent way where you can collect public funds for matter of property development.”