The Developer's Digest, May - June 2015 Issue

FOCUS ON POLICY
FOCUS ON POLICY
REITS REGIONAL INVESTMENTS AND TAX TREATMENT
• Kenya, Tanzania and Uganda (July 2015) have REIT regulations which are significantly similar;
• Kenya and Uganda are expressly tax exempt. Tanzania REIT structure follows a unit trust structure
and are not tax exempt;
• In Tanzania REIT, Rule 102 of the Collective Investment Schemes Real Estate Investments Trusts,
Rules 2011 states that – Distribution of Income states that:
‘ The fund shall distribute dividends which have arose from gains or realized income each year
an amount not less than 90% of its annual net income after tax.’
• Kenya cannot invest across geographical jurisdictions. Tanzania and Uganda REITs can invest in
foreign real estate/funds however, the investment objective of the fund must be clear, specific
and sufficiently stipulated in the deed;
• Uganda has not amended its Income Tax Act, hence the cross border investment may pose
administrative challenges for now.
FUTURE IMPLICATIONS OF REITS
• Spur further property developments through forward purchases with developers;
• Provide liquidity in the market place;
• Provide price discovery;
• Enhance the structure and due diligence of property transactions, especially record keeping;
• Lead to the formation of a property transaction registry;
• In keeping with the theme of EAC, it will lead to more EA transactions. This is also in line with
EASEA which envisages one common EA stock exchange;
• Enhance quality of investment returns for insurance companies, pension funds and individuals;
• Enhance transparency and comparison of risk and investment returns with other asset classes.
WHAT CAN A REIT INVEST IN?
• Eligible Kenyan real estate – freehold, leasehold under Land Act 2012 or Sectional Properties Act
title with at least 25 years un-expired;
• Real estate through a Kenyan company;
• Real estate through an investee trust;
• Other income producing assets (companies whose principal business is real estate related);
• A wholly owned and controlled company which conducts real estate activities;
• Cash, deposits, bonds, securities and money market instruments;
• REIT units in other Kenyan I-REITs.
CONCLUSION
REITs sector in the region has significant potential supported by:
• Regional integration;
• Supportive monetary policies;
• Stable macro-economic environment;
• Improving infrastructure;
• Increasing foreign investment and diaspora remittance;
• Need for internationally recognized structured vehicles in real estate sector
Kenya Property Developers Association... Development brings Development!
Kenya Property Developers Association... Development brings Development!
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