[2008-09-15]  Property market heading to the NSE
A framework for listing a special purpose vehicle for the real estate sector at the capital markets will be unveiled before the end of the year.

Consultations with stakeholders to come up with the framework are under way said the chief executive officer of the capital markets authority Ms Stella Kilonzo.

“We are making good progress in the process and will unveil a framework before the end of the year,” she said.

The special purpose vehicle known in industry jargon as Real Estate Investment Trust (REITs) allows owners of property and those interested in the sub-sector to trade at Nairobi Stock Exchange in the form of shares or under equity arrangements.

Already, preliminary minimum capital requirements for companies wishing to list as REITs at the stock exchange once the framework is put in place have been finalised.

Medium scale property companies will be required to have a basic capital of Sh50 million while bigger firms will be required to have a capital base of at least Sh500 million.

The process of looking for ways to list a REITs at the capital markets was launched in June this year and a financial consultancy firm, Capital Partners, appointed by CMA to head the process.

However, there a number of obstacles and market reforms that are necessary before the process can run smoothly.

Industry players say that Kenya being a country with a much diversified property market portfolio will require up to date data on property transaction trends to give an accurate guide on rates of return and prospects of the future.


KREX index
One such initiative— the launch of the first real estate property index, KREX —fell by the way side due to differences among players in the market with some saying that it will distort the market.

Renée Blasky of Capital Partners said that they may be forced to source for data on trends from individual property companies and evaluate to establish the real rates of returns.

“We will engage as many reputable property firms to be able to determine and understand some the rate of return parameters in the country as the market is highly diversified,” said Ms Blasky in an earlier interview.

Before listing of any REITs, the CMA will also be required to make changes in its collective investment scheme rules to allow companies invest a 100 per cent of their deposits in property as opposed to the current ceiling of 25 per cent.

Also to be reviewed is a clause in CMA rules where pension funds acquiring property are exempted from income tax while real estate companies are not.Under current CMA guidelines, pooled resources fall under collective investment schemes (CIS), with no separate provisions for those dealing in specialized areas like property.

Presently, most of the resources are invested in equities, fixed income securities and mutual funds.

“REITs is a very specific investment vehicle which will need specific market guidelines to work,” said Ms Kilonzo.

The need for listing of REITs at the NSE started last year after a number of property companies and funds expressed interest in the Kenyan property market.

Enquiries have been received from four companies including Rutleys — a property arm of Knight Frank — and a number of investment firms seeking approval to list property companies at the bourse.

In September last year, Rutleys launched a Sh13 billion property fund in response to what it termed a “good property investment outlook” for the country and the East African region.

The firm, however, had to list its shares in Johannesburg and London stock exchanges, leaving out NSE after it failed to find a suitable local REIT partner coupled with specific guidelines on the operations of such investment trusts in the country.

Other companies that have shown interest include Bora Capital.

Several local investors and international real estate think-tanks have in the past touted listing at the stock exchange as the best way to loosen capital tied up in property to further spur real estate development.

Individuals and companies — including the National Social Security Fund (NSSF), Retirement Benefits Authority, mortgage providers and insurance companies — have been unable to dispose of properties or issue mortgage backed securities due to low liquidity to meet asset allocation levels set by regulatory authorities.

A REIT provides an avenue through which investors pool resources to develop or trade in properties with returns shared equitably after a specified trading period.

sREITs are traded at stock exchanges in the form of shares, helping liquidity as property can be sold at the exchange in whole or bits, once they are floated.
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