New window of opportunity

in real estate
MONDAY NOVEMBER 9 2009

Apartments under construction in Nairobi. Many property experts are sharpening their
skills ahead of the new regulations. Photo/FILE
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By FRANCIS AYIEKO
Kenya’s property market players are positioning themselves for a major
investment window the government is about to open by allowing the floating of
property shares on the stock market.

The EastAfrican has established that a number of valuers and property managers
in major towns like Nairobi are already putting in place, or upgrading, the
necessary infrastructure —office space, equipment and staff.

Yet others are acquiring new skills and developing other necessary tools in
readiness for the launch of new regulations on Real Estate Investment Trusts by
the Capital Markets Authority.
Industry sources say experts are sharpening their skills in key areas like data
collection, analysis and dissemination; portfolio management; and mass
valuation techniques.

The Real Estate Investment Trusts Regulations will open up investment in the
capital-intensive large-scale commercial property sector to the general public.

It will allow individual investors to buy and sell shares of properties listed on the
bourse in much the same way people trade in stocks and shares of companies
listed on the stock exchange.

This will be the first time in Kenya that real estate will be “chopped up” into small
units for people to trade in.

According to the draft Real Estate Investment Trusts Regulations, large investors
will be allowed to raise money through the capital market, making it possible to
channel capital into the real estate sector in a more structured manner.

They will be required to register a real estate investment trust under the Trustee
Act, Cap 167, with the Capital Markets Authority.

The trust will raise capital from the market and invest it in real estate projects on
behalf of shareholders with the aim of providing returns to unit holders.

The returns will mainly be in the form of rental income or capital gains accrued
from the real estate investment.

A real estate investment management company, incorporated under the

Companies Act Cap 486, and registered with the Capital Markets Authority, will
manage the investment schemes acquired by the Trust on behalf of the investors.

Properties acquired by the trust and managed by the company will be listed on
the stock exchange, where members of the public wishing to invest in real estate
will have the opportunity to buy shares and trade in them.

The introduction of the rules will result in a liquid property market that is widely
accessible to the private investor.
Those wishing to invest in the schemes will require the services of valuers to
determine their interest in the investment.

Valuers will also come in handy when such individuals want to divest from the
schemes.

On the other hand, property managers will be the ones managing the real estate
investment schemes acquired by the Trust on behalf of the investors.

The Capital Markets Authority told The EastAfrican last week that the draft
regulations will be ready soon.

“We are finalising the draft. We hope to have it ready soon,” said the source.

Last month, the Valuers and Estate Management Surveyors Chapter of the
Institution of Surveyors of Kenya organised a seminar to sensitise its members to
the opportunities that will come with the introduction of the real estate
investment trusts.

“This is an opportunity that needs to be grabbed by landed professionals,” said

Collins Kowuor, the chairman of ISK’s Valuers and Estate Management
Surveyors Chapter. “We are creating awareness among members and
encouraging them to exploit every opportunity through any possible forum.”

Mr Kowuor said the new investment avenue will spur growth and increase the
pace of activities in the country’s property market “because, among other things,
it makes real estate more affordable and liquid.”

He says professionals will benefit from valuation and management of real estate
projects that will be acquired under the new system.

There will also be opportunities for consultancy services, rental assessments and
viability appraisals.

The industry, he added, has started sensitising “prospective clients” to the new
investment opportunity.
Reginald Okumu, the managing director of Ark Consultants, said that apart from
benefiting property professionals, real estate investment trusts provide great
investment opportunities to the investing public, institutional organisations and
the government.

It is likely to spur investment in real estate, thus creating the much-needed

employment.

Also, it will help pension funds overcome the hurdle placed by the Retirement
Benefits Act, which limits their investment in real estate to not more 30 per cent
of the value of the investment portfolio,” Mr Okumu said.

But he said that property market professionals will have to upgrade their skills if
they are to deliver quality services in this area.

“Valuers will still carry out valuations while property managers will still manage
properties. The difference will be that the traditional approaches to valuation and
property management will not necessarily work in the new environment,” he
said, adding that there is a lot of behind-the-scenes jostling among professionals
for the opportunities.

“There is a lot going on behind the scenes in subtle and not-so-subtle ways. The
release of a property index a while back by a player in the industry should be seen
in this light. Efforts by the Kenya Real Estate Index Association to develop an
Index should also be viewed as an attempt at positioning the players in the
industry,” he said.

He added: “Some players have also been reorganising their management

portfolios and structures in preparation.”