KENYA Law and Practice Contributed by: Anne Kinyanjui and Loice Erambo, DLA Piper Africa, Kenya (IKM)
A REIT scheme may be structured as follows. • In a development REIT (D-REIT), investors pool resources for the purposes of acquir - ing eligible real estate for development and construction. Upon the completion of con - struction, the D-REIT may be converted to an income REIT (I-REIT). • In an I-REIT, investors pool resources for the purposes of acquiring long-term income- generating real estate. The capital gain and rental income are distributed amongst the unit holders. • An Islamic REIT is a pool for investment in income-producing Sharia-compliant real estate products. REITs are beneficial to investors because they are professionally managed and there is mini - mal capital risk, despite the variety of real estate products available. REITs also enjoy tax exemptions (see 8.5 Tax Benefits ). 5.3 REITs REITs are available in Kenya (see 5.2 Main Fea- tures and Tax Implications of the Constitution of Each Type of Entity ). They may be unlisted or listed on the Nairobi Securities Exchange. Foreigners are allowed to set up and invest in REITs provided that they comply with the appli - cable laws. In order to register a REIT, the pre - scribed minimum capital requirements (see 5.4 Minimum Capital Requirement ) must be met, and the CMA must declare the REIT to be an authorised scheme. The advantages of REITs are that: • they enable low capital investors to invest in real estate, which is typically capital intensive;
• they are a source of capital for real estate development and investment; • they allow investors to diversify their real estate portfolio based on the schemes’ pool of assets; • if listed, they create liquidity by allowing easy and quick investment in real estate; • they can, in the case of income REITS (I-REITS), provide consistent income, since they are required to pay out at least 80% of its taxable income to unitholders in the form of dividends; • since they are regulated entities, they benefit from transparency and professionalism in their management and operation; and • they enjoy tax exemptions (see 8.5 Tax Ben- efits ). Despite the benefits, there is still a low uptake of investment in REITs in Kenya for various reasons including low investor awareness, market volatil - ity and high set-up costs. 5.4 Minimum Capital Requirement There are no minimum capital requirements for LLPs and private LLCs. A public LLC must have a minimum capital requirement of KES6,750,000 (approximately USD50,945). REITs must have: • a REIT trustee, who is required to have a minimum paid up capital of KES100 million (approximately USD754,720); and • a REIT manager, who is required to have a minimum paid up capital of KES10 million (approximately USD75,470).
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