High taxation, multiple land laws curb growth of real estate investment trusts

The real estate market is sensitive to taxation. PHOTO | FILE

Kenya has listed only one real estate firm on the Nairobi Securities Exchange in the

past nine years.

The Capital Markets Authority (CMA) says real estate investment trusts (Reits) are facing punitive taxes, cumbersome and multiple land laws, restrictive regulatory regime in terms of compliance costs and high listing prices. Other negative factors include waning investor confidence in the stock market.

Poor first-hand experience in Reits investments, inadequate investor sensitisation and a struggling economy have hampered the growth of the sector.

“We have put together a legal framework that protects people who get into Reits. However, the challenge we have is taxation. Reits thrive where the tax system is favourable because you are making money on real estate. Many people who are interested in the Reits have raised the issue of taxation,” CMA’s chief executive Wycliffe Shamiah told The EastAfrican in an interview last week.

“In Reits, people are getting rental income or capital gains on property investments, which is sensitive to the taxation system. We have been in negotiation with the government and the Kenya Revenue Authority,” he added.

The CMA introduced regulations to govern the performance of Reits in 2013, but only ILAM Fahari I-Reit listed in the NSE. The Acorn Student Accommodation Reit trades both as a Development Reit (D-Reit) and Income Reit (I-Reit) on the Unquoted Securities Platform (USP).

Since listing on the NSE in 2015 ILAM Fahari I-Reit lost 69 percent of its value to Ksh6.20 ($0.05) by April 13, 2022, from Ksh20 ($0.17) in November 2015.

Regionally, Uganda gazetted its Collective Investment Schemes Regulations in 2017. The country has not listed any firms. Rwanda introduced Regulation No 14 on Reits in 2013, but so far has not registered any firm.

According to the Centre for Affordable Housing Finance in Africa, Tanzania introduced regulations for Reits (CMS Collective Investment Schemes and Real Estate Investment Trust Rules) in 2011. The country has registered only one Reit, Watumishi Housing Company, established in 2014 and licensed by the Capital Markets and Security Authority in 2015.