26 January 2013

Kenya: Reits Regulations to Be Gazetted Before March

Regulations for the Real Estate Investment Trusts, a new capital markets instrument, are expected to be gazetted before March 4, raising hopes for creation and listing of Reits schemes for the first time in Kenya.

The Capital Markets Authority's acting chief executive Paul Muthaura said yesterday that the Reits framework has been finalised and submitted to the Finance minister who is now expected to gazette them before his term ends.

"Our hope is that the regulations will be enacted before the term of the current government is over," said Muthaura. Reits are collective investment vehicles which pool funds from investors to build or acquire real estate assets which they sell or rent to generate income, which is then distributed to holders of Reit securities at the end of a financial year.

They enable mobilisation of savings from a wide spectrum including individuals and groups such as Chamas. The Finance Bill 2011 proposed tax incentives for Reits to create new frontiers for housing supply in urban areas and stem the cumulative housing deficit.

"They are not a panacea to the housing problem in Kenya currently but a new innovation that may creatively encourage property development," said Kerry Adby, a capital markets regulatory expert for Reits.

To enjoy the tax incentives Reits schemes will be required to distribute at least 90 per cent of their incomes to Reit securities holders. Rules that will enable Reits to list and trade at the Nairobi Securities Exchange are also expected to be ready by the time the regulatory framework is gazetted, according to Muthaura.

The CMA is currently engaging the Kenya Revenue Authority to iron-out taxation issues in order to ensure "tax neutrality", where investments in the hands of trustees will not be taxed until when income is being distributed to Reit holders.

For existing housing suppliers such as the National Housing Corporation and the Kenya Building Society, a subsidiary of Housing Finance, Reits will offer opportunity to free up capital from completed projects and recycle the capital in new investments.

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