Real estate shares trading faces hitches, warn experts

What you need to know:

  • Real estate investment trusts (Reits) could be up and running before the end of this year after its regulations were developed in 2013.

Retail investors could be locked out of a planned real estate investment platform, which is set for launch at the Nairobi Securities Exchange due to high entry requirements, analysts have warned.

Real estate investment trusts (Reits), which is meant to enable small-scale investors participate in ownership of property investments listed on the stock market, could be up and running before the end of this year after its regulations were developed in 2013.

According to analysts at Cytonn Investments, while Reits is expected to provide an exit plan for developed properties, income yield for investors and a tax efficient structure to undertake development, there are many hurdles to cross before this becomes a reality.

“To begin with, the low investor education on capital markets, coupled with the minimum investment amount of Sh5 million per investor, locks out a majority of individual retail investors. Additionally, scarcity of institutional grade real estate that is required to support high yields and capital appreciation will continue to hamper the development of listed Reits market,” analysts said in a weekly report.

Others, however, indicate that retail investors can overcome this roadblock by pooling their resources.

Reits regulations introduced two types of investment avenues in the property market namely the development Reits (D-Reits) and investment Reits (I-Reits).

The former’s objective is to construct and develop real estate while the latter focuses on income-generating property such as rentals or those that are put up for sale.

The Capital Markets Authority has so far licensed three Reit trustees and six Reit managers in anticipation of the much-awaited launch of the product on the bourse.