Nairobi; Kenya: Home Afrika is seeking to raise cheaper capital through Real Estate Investment Trusts (REIT) as the firm eyes to become a force to reckon with in real estate.
The Nairobi Securities Exchange (NSE) listed real estate developer is looking for ways to finance its long-term development projects with a keen eye on the debt market and the REIT — collective investment vehicles in the real estate industry.
REITS are considered critical instruments in providing affordable funds to real estate developers. “REIT will offer a favourable vehicle for funds in the capital markets and pension sector to enter and exit within a regulated environment,” says Njoroge Ng’ang’a, the firm’s chief executive.
Mr Ng’ang’a (inset photo) says the firm is applying to operate as a REIT manager with hopes of making inroads into the thriving middle-income market. He says REITS are expected to be instrumental in financing property developments in coming years as developers consider cheaper options to fund activities away from commercial loans.
It is argued that investment into the real estate sector through REITS could address the housing shortage in urban areas. Ng’ang’a says Home Afrika would issue Development REIT (D- REIT) to enable it carry out property developments on its ongoing projects. In addition, he says, the company would issue Investment REITS (I-REIT) with a view of producing tradable instruments from the proceeds of the completed developments.
These, he says, include its flagship mixed development Migaa project in Kiambu, already underway and scheduled for completion by 2016. He says Home Afrika’s projects are long-term and require significant capital injection. “REITS and bonds are turning out to be effective platforms through which to access funds,” he says.
The company in late August reported a 72.9 per cent decline in its half-year profits before tax to Sh68.2 million owing to a sharp rise in its operating costs. Its share price at the NSE has also been on a decline trading at Sh4.90 during Friday’s trading session compared to its listing price of Sh12 in July last year and a high of Sh25 after the listing.
The Capital Markets Authority (CMA) has granted a licence to several firms to operate as REIT managers, including Stanlib Kenya Ltd, Fusion Investment Management Ltd, CIC Asset Management Ltd, Centum Asset Managers Ltd and UEdos News Investments Ltd. Mortgage financier Housing Finance (HF) became the first company to receive a REITS Trustee license following introduction of the Capital markets (real estate investment trusts) (collective investment schemes) regulations, 2013.
Kenya’s capital markets is expected to play a strong role in the further development of the real estate sector.
It is argued that the housing sector should be given more incentives to help the government meet their 2030 Vision goals. As a result, CMA has stepped up efforts in spearheading the establishment of REITS, which is one of the key flagship projects under the Vision 2030 economic blueprint.
The introduction of REITS is expected to attract property developers to the capital markets to raise funds. It is also expected that through a higher level of participation in the capital markets by property developers, bank financing would be forced to become more competitive thus helping to further reduce development costs.
It is highly expected that operationalisation of REITS—collective investment vehicles into the real estate sector— would make investment into the real estate sector an attractive business outfit to both local and international investors.
It would also provide a well-structured investment option, which could be used to tap into huge amounts of money currently being held by women through ‘chamas’. The demand for affordable housing in Kenya is high, and particularly in urban areas with the government estimating that at least 200,000 units per year are needed to meet the demand.
By James Anyanzwa, The Standard