Capital Markets Authority (CMA) has proposed cutting the minimum subscription for a real estate investment trust (REIT) from KSh5 million per investor to KSh100,000.
The regulator introduced the KSh5 million floor in 2013 when REITs were first listed, aiming to limit participation to sophisticated investors who understood the risks.
REITs enable developers to raise capital for new projects (development REITs) or to monetise existing properties by selling rights to future rental income (investment REITs).
In a CMA report the authority described the proposed cut as “a progressive move to democratise real estate investment and deepen the capital markets” and noted that the previous level “was kind of challenging considering the amount that was involved”.
This proposal follows an earlier, unsuccessful attempt three years ago to lower the threshold to KSh10,000, which was not enacted through an amendment to the law.
The regulator also said there is no statutory minimum for investors in unrestricted income REITs.
CMA plans to reduce the fee for converting a development REIT to an investment REIT to KSh150,000, down from a previous maximum of KSh7.5 million.
The lower subscription amount and reduced conversion fee are part of a suite of legal changes intended to boost REITs’ contribution to the government’s affordable housing agenda.
The authority is additionally seeking to cut the public-ownership cap on REIT property from 25 per cent to 15 per cent to encourage greater corporate participation.
Currently three REITs are listed on the Nairobi Securities Exchange, two of which are denominated in dollars, reflecting the profile of existing investors.
CMA warned that large investors such as pension funds and insurance companies, which typically hold sizable stakes, may be compelled to sell portions of their holdings to comply with the reduced ownership limits.
The regulator said, “If a few large investors already own most of the Reit, they are forced to adjust, they may have to sell part of their investment to the public, even if they don’t want to; not because they need money but just to meet the rule resulting to dilution of ownership and weaker decision making”.
CMA also proposes granting REIT managers authority to guarantee loans taken by the REIT’s projects or associated special-purpose vehicles, a step it believes will improve lenders’ willingness to provide financing.
Two REITs launched this year were oversubscribed, with ALP Investment REIT’s initial public offer receiving a 115 per cent subscription and Trific Green I-REIT achieving a 103.3 per cent uptake.
