Listing rules for Real Estate Investment Trusts (REITs) which will restrict minimum parcel sizes to be traded at the Nairobi Securities Exchange are in the pipeline.
The REITs Regulations 2012 state that REITs can be structured as closed-ended funds and listed on a restricted exchange, or as open-ended funds.
"We are jointly working with the Nairobi Securities Exchange on the requisite listing rules," the Capital Markets Authority said in response to a query.
The rules say trading of listed REITs (both development and income) will be limited to a restricted minimum parcel size of Sh1 million.
REITs act as trust funds that hold or invest in real estate, with most of their incomes coming from rental commercial and residential properties, and are obligated to distribute profits as dividend to holders of the securities.
The Finance Bill 2011 proposed tax incentives on REITs to create new frontiers for housing supply in urban areas and stem the cumulative housing deficit. To enjoy the tax incentives they will be required to distribute at least 90 per cent of their income to shareholders.
The policy and regulatory framework for REITs is however yet to be gazetted despite having been finalised in 2012.
"As required under section 12 of the Capital Markets Act, the final draft was submitted to the Minister for Finance for consideration and gazettement," the CMA said.
The draft regulations were exposed to capital markets stakeholders and the general public for comment, after which slight changes were accommodated.
The delay in gazetting the rules means it will take a while longer before the first REITs debut at the NSE, but the CMA said it is "well on the right path."
According to the regulations, a promoter of an I-REIT must maintain at least 30 per cent of the investment value of the fund at the date of issue of the units for the first year from the close of offer or date of listing of REIT securities.
After the first year, the promoter may reduce its holding to a minimum of 20 per cent; 10 per cent after the second year and can exit after the third year.
Before listing, REITs must appoint transaction advisers, and share and note registrars for the offer of REIT securities.
For listed REIT schemes, the REIT manager and the appointed trustee must notify the CMA prior to suspension of trading at the NSE and must "comply with relevant dealing or trading rules relating to suspension".