Investing in Real Estate Investment Trusts (REITs): A Simple Guide for Kenyans

If you have ever dreamed of investing in real estate but felt that the high costs and complexities of owning property were a barrier, there is good news. You can invest in real estate without buying a physical property through Real Estate Investment Trust (REIT). For many Kenyans, REITs are a new but exciting way to tap into the profitable real estate market with less hassle and risk. Here is a breakdown of what you need to know about REITs.

A Real Estate Investment Trust (REITs) is a company that pools money from many investors to buy, manage, or finance income-generating real estate properties. These properties include: shopping malls and retail shops, office buildings, residential apartments, warehouses and industrial properties.

Think of a REIT as a collective investment scheme. Instead of directly owning a building and handling tenants, you invest in a REIT that takes care of all that. In return, you become a shareholder in the REIT, and you earn income through dividends paid out from the rent collected or profits made by the company. In Kenya, REITs are regulated by the Capital Markets Authority (CMA), ensuring transparency and protection for investors.

REITs operate by investing in income-generating properties. They make money through rent collected from tenants of their properties, sale of properties at a profit and interest Income earned from loans provided to property developers. A key feature of REITs is that they are required to distribute at least 80% of their profits to investors as dividends. This means you can earn regular income without you managing any property.

There are three main types of REITs in Kenya:

  • Income REIT (I-REIT): Focuses on rental properties, providing income through rent collection.
  • Development REIT (D-REIT): Invests in property development projects, offering returns from the sale or leasing of developed properties.
  • Mortgage REIT (M-REIT): Provides loans to property owners and developers, earning interest income.

Investing in REITs is similar to buying shares in the stock market. Here’s a step-by-step guide:

Step 1: Open a CDS Account: To buy REIT shares, you need a Central Depository and Settlement (CDS) account. This account is like a bank account, but it holds your shares. You can open a CDS account with any licensed stockbroker or your bank.

Step 2: Choose a Stockbroker: A stockbroker acts as a middleman, helping you buy and sell REIT shares. Choose a licensed stockbroker who can offer you advice on which REITs are performing well.

Step 3: Research Available REITs: Take time to research the REIT’s portfolio, dividend history, and performance.

Step 4: Make Your Investment: Once you’ve chosen a REIT, instruct your broker to buy shares on your behalf. You don’t need a large amount of money to get started, making REITs a great option for investors of all sizes.

Step 5: Monitor Your Investment: Keep an eye on your REIT’s performance and any changes in the real estate market. Your stockbroker or investment advisor can provide updates and suggest adjustments to your portfolio.

REITs offer several advantages that make them an attractive investment option:

  • Affordability: With REITs, you don’t need millions of shillings to invest in real estate. You can start with a relatively small amount, making it accessible to many Kenyans.
  • Regular Income: Since REITs are required to pay out most of their income as dividends, you can earn regular cash payments. This makes REITs a good option for those looking for steady, passive income.
  • Diversification: When you invest in a REIT, your money is spread across multiple properties rather than being tied to one building. This diversification reduces risk and provides a more stable return.
  • Liquidity: Unlike owning a physical property, which can take months or years to sell, REIT shares can be easily bought and sold on the stock market. This makes it easier for you to access your money if you need it.
  • Professional Management: REITs are managed by professionals who have expertise in real estate investment. They handle property selection, tenant management, and maintenance, saving you the hassle and ensuring better returns.
  • Tax Benefits: In Kenya, REITs enjoy certain tax exemptions, which can boost your overall returns compared to other investments.

Finally, investing in REITs is a smart, easy, and accessible way for Kenyans to enter the real estate market without the hassle of buying and managing properties. Whether you are looking for steady income, diversification, or a way to grow your wealth, REITs offer a great alternative to traditional property investments.