NSE bets on new unit to boost capital inflows

The introduction of a real estate unit at the bourse has given Kenya an edge in attracting financial inflows.

Kenya had its first REIT offer, the Stanlib Fahari I-Reit, on October 25, last year. However,  the maiden issue only raised Sh3.6 billion out of the targeted Sh12.5 billion. PHOTO | FILE 

In Summary

• East Africa’s economic growth is also the fastest on the continent, with projections of 5.6 per cent to 6.7 per cent in 2016 mainly due to its relatively low reliance on the commodity market and reduced import burden thanks to low oil prices.
• Kenya had its first REIT offer, the Stanlib Fahari I-Reit, on October 25, last year. However,  the maiden issue only raised Sh3.6 billion out of the targeted Sh12.5 billion.

The introduction of a real estate unit at the bourse has given Kenya an edge in attracting financial inflows.

Nairobi Securities Exchange (NSE) Chief Executive Geoffrey Odundo said the listing of Real Estate Investment Trust (REIT) has enabled the country to leverage capital targeting the booming construction sector in East Africa.

Kenya had its first REIT offer, the Stanlib Fahari I-Reit, on October 25, last year. However,  the maiden issue only raised Sh3.6 billion out of the targeted Sh12.5 billion.

“Basically we are talking the language they understand and are used to. I think the REIT gives us leverage in the East African region,” he told Smart Company at the sidelines of the East Africa Property Investment Summit (EAPIS).

Nairobi hosted the EAPIS last week featuring real estate development and investment companies from 16 countries with more than 300 delegates in attendance.

East Africa has seen a strong upward trend in the number of property developments completed and capital investments made in the region.

According to the hosts of the summit, API Events, more than Sh25.3 billion ($250 million) of new real estate developments are either being worked on or have been completed since the beginning of the year.

East Africa’s economic growth is also the fastest on the continent, with projections of 5.6 per cent to 6.7 per cent in 2016 mainly due to its relatively low reliance on the commodity market and reduced import burden thanks to low oil prices.

Impressed

“We have seen a distinct shift in momentum from West Africa to East Africa. This has been driven by the economic uncertainties in the West African markets whereas East African markets have relatively very strong growth prospects and currency stability,” said Head of Capital Markets, Jones Lang Anthony Lewis.

Mr Lewis stated that fund managers are impressed by great progress in the development of domestic capital markets, infrastructure and trade through integration of East African economies.

Acting Director of Regulatory Policy at the Capital Markets Authority, Luke Ombara said the market is ripe for differentiated REIT products including the development and construction of real estate investment trust scheme (D-REIT) and even Islamic REIT to cater for Muslims.

“The demand for an Islamic REIT is there. We have fund managers, about millions in Muslim population in the region who would want to buy into that which comply with Sharia law,” he told Smart Company.

An Islamic REIT prohibits operations including conventional banking services, gambling and casino operations, sale of liquor and non-halal food items, among others.

In case of tenants operating mixed activities (Shariah compliant and non-compliant activities), the proportion of rentals from the operation of non-permissible businesses to total turnover of the Islamic REIT in any current financial year must not exceed 20 per cent.

According to Mr Mohamed Ebrahim of  Islamic financial services company, Ace Financial Advisory, real and tangible asset investments are the most preferred among Muslim investors and institutions as they are  naturally agreeable with  Islamic finance principles which advocate link between the real economy and the financial sector

Analysts however say East Africa faces challenges of scarcity of support infrastructure, potential oversupply of retail and office space and the lack of debt funding.