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Personal Finance
By RODGERS OBURE |
In Africa, growth of the REIT market has been limited by the absence of
enabling legislation. While there are risks associated with REITs in
Kenya, there is a high level of justification for its introduction in the
market due to the benefits associated with investing in them.
Some of the gains are the fact that REITs facilitate: access to
investment in large scale real estate projects for individual investors,
diversification, liquidity advantage over direct investment in privately
traded underlying real estate assets, access to professionally managed
portfolios, reduced development costs for property developers, tax
advantages and limited legal liability for the shareholders of a tax
qualified REIT, and a regular income stream for the investor via
distributed dividends.
The efficiency of the stock market also tends to give REIT investors
more protection against poor investment decisions. Additionally, REITs
are known to own multi-property portfolios with a diversified tenant
pool. This means one can invest in a diversified pool of real estate for
a modest investment amount, rather than put money in an individual
specific property.
There are also risks associated with REITs which include; need for the
investor to have adequate knowledge on both the stock market as well
as property market in order to get the most out of their investment,
valuation uncertainty, borrowing risks, economic and political
environment, slow growth, occupancy rates and rents.
Some of the steps to mitigate the risks involved in REITs and enhance
its development in Kenya include; public education, need for the land
ministry to address challenges surrounding land ownership, cartels,
issuance of title deeds, need for property owners and developers to
raise funds through the capital markets, and the need for enabling
legislation and policy changes required to propel REIT development.