Real estate investment trust marts stalled by regulations
Introduction of minimum capital requirements for real estate investment trust (REIT) trustees, tough corporate trustee regulations and low investor awareness may stymie growth of Kenya’s capital markets.
In its latest report, the investment firm Cytonn says these factors must be quickly addressed in order to increase vibrancy in the sector, if it is to grow faster.
“The most fundamental change that is required in the reduction of minimum capital to allow for corporate trustees, the high levels of capital essentially reduce the trustee role to banks.
It is no wonder that the REIT market, after 8 years, has only managed to raise a paltry Sh13.1 billion as of June 2021, and so far does not appear to be gaining traction,” noted Cytonn in its report.
Analysts at the firm say more may need to be done in order to increase vibrancy in the capital markets, especially improvements in investor awareness, and reduction of minimum capital requirements.
This even as the sector surprisingly registered an impressive performance for the financial year ended June 30, despite the aforementioned faltering, and the ravaging impacts of the Coronavirus pandemic.
In its quarterly statistical report, the Capital Markets Authority (CMA) attributed the growth to increased activities in the sector that witnessed 1,506 deals concluded during the period under review compared to 306 deals in the previous quarter, a 392.16 per cent jump.
However, analysts say the sector has the potential to grow beyond these figures.
In June, 2021, President Uhuru Kenyatta assented to the Finance Act, 2021 which amongst other changes, introduced provisions for the registration and regulation of corporate trustees in the retirement benefits industry.
Those changes, coupled with raising the minimum capital requirements for participating players to Sh100 million, could have dented the industry’s growth potential.
In Kenya the minimum for collective investment scheme (CIS) and bond trustees is not known, the REITs is Sh100 million and for pensions is Sh10 million.
The amount, for instance, is thought to favour banks – who by the virtue of their financial girth, have an advantage over other players willing to invest on other types of trustees that need no approval or licensing such as trustees of private trusts, charities, and endowment funds.
Currently there are just five licensed banks approved to offer trusteeship service with KCB Trustee Services commanding the market with a market share of 87.6 per cent, with a staggering 11 different investment schemes followed by Stanbic Bank Kenya Ltd and Cooperative Bank of Kenya with 7.7 per cent and 2.5 percent respectively.
Others are Goal Advisory (A) Ltd, HF Bank, NatBank Trustee Services and others which are either non-corporate trustees while others are not appointed or unclear.
A trustee is a person or firm that holds and administers property or assets for the benefit of a third party.
These individuals are essentially trusted to make decisions in the beneficiary’s best interests and often have a fiduciary responsibility, meaning they act in the best interests of the trust beneficiaries to manage their assets.