Since the introduction of Real Estate Investment Trusts (REITs, in Kenya in 2013, they have picked traction and opened a new investment asset class accessible to both local and foreign investors.
REITs are a regulated investment vehicle which operates and finances income-producing real estate. Like any company share, they are traded on the NSE, and they offer investors a liquid stake in real estate.
How Do REITs Work? In a nutshell, REITs have the same operating principle as mutual funds. They allow individual investors to acquire ownership in a real estate portfolio.
REITs promoters source funds to build or acquire real estate assets, which they sell or rent to generate income. The income generated is then distributed to the investors as returns/dividends in investing in real estate trusts.
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The property is held by a trustee on behalf of unitholders and professionally managed by a REIT manager.
Types of REITs
In Kenya, there are three main types of REITs. They include: Income Real Estate Investment Trusts (I-REITs): These are real estate trusts that largely derive their revenue from rental properties. The dividends and returns are gained through rental income and capital appreciation from the investments undertaken.
Development Real Estate Investment Trust (D-REITs): Resources in this type of real estate trust are pooled together for purposes of developing real estate projects. Once a development has been completed, a D-REIT may be converted to an I-REIT and here the investors may choose to either re-invest their funds, sell, lease their shares or they can choose to sell the developments that have been undertaken.
Islamic Real Estate Investment Trusts: This is a unique type of REIT that only undertakes Shari’ah-compliant activities. A fund manager is required to do a compliance test before investing in this type of REIT to ensure it is Shari’ah compliant.
Why Invest in REITs? REITs have myriads of benefits for investors. For one, it has competitive long-term results since its performance is derived from real estate investments. And we all know that over time, real estate can outperform other asset classes.REITs, like fixed income securities, and equities have different long-term investment characteristics creating diversification when combined within a single portfolio.Investing in real estate trusts allows investors to customize their portfolios depending on the fund characteristics, the various real estate sectors, and geographic exposures.Better yet, REITs listed on securities exchange provide […]