BY ANTONY MUTUNGA
East Africa’s bubble in real estate has amazed various overseas investors who are now keen to shift their attention from West Africa.
James Muriu, regional retail manager at Knight Frank says that there has never been a better time to invest in East Africa. This is currently visible in the number of real estate ventures that have been put up in the region including Garden City mall and Tatu city in Kenya and the upcoming Vision city in Rwanda. With the sector still growing, East Africa may be the new king when it comes to real estate in Africa.
In Nairobi especially, real estate has been a booming business that has seen many large organizations and top investors invest in the sector to get a piece of the pie. The rise in the property sector saw the establishment of Income REITs (I-REIT) in the country by Stanlib Investments Kenya, the first of its kind in East Africa.
The introduction of Stanlib Fahari I-REIT paved way for other organizations to step up and invest in real estate, resulting in strip shopping malls, which attracted investors to the projects the growth of real estate industry. The projects included Actis’s Garden city mall as well as the upcoming Centum’s Two River mall that is to be complete by the end of 2016.
According to the Knight Frank Global Cities 2016 survey, around 1.8 million sq ft of modern shopping mall space was opened in Nairobi in 2015, nearly doubling the previous shopping mall space that stood at a total of 980,000 sq ft.
With a lot of the retail space in Nairobi taken up, organizations started to focus on moving to other counties so as to reduce the supply of retail property in Nairobi County. The move to focus on counties was also due to the rise in interest from investors in industrial and residential properties in other counties compared to Nairobi.
During the East African Property Investment (EAPI) summit held Nairobi in April, Kenneth Kaniu who is the Chief Executive Officer, Britam asset managers in Kenya said, “There is a lot of opportunity for strip malls in other counties like Naivasha, Kisumu, Nakuru, Nanyuki and Mombasa.” He said that it was the time to move the high-end shopping malls to the counties that are not within the Nairobi metropolitan.
Although over the years, no retail property was being put up outside the Nairobi metropolitan with most organizations thinking that the investment would not be able to return high yields, when Rendeavours’ Tatu city started off an industrial and residential real estate in Kiambu County, other organizations saw an opportunity to try going to counties a bit far from the capital city.
The real estate sector is now about to get more attractive as a private equity, Fusion Capital, is about to create a real estate park outside the Nairobi metropolitan. The investment firm was given a green light by the Capital Markets Authority (CMA) to make the first Development Real Estate Investment Trusts (D-REIT) in Kenya a possibility.
Paul Muthaura, the CMA Acting Chief Executive in a press statement said, ‘’the approval of the first Development REIT schemes is in line with our mandate to facilitate uptake of the innovative product to support the growth ambitions of the vibrant real estate sector’’. This is evidence of how REITs may be the future of the real estate sector in Kenya.
‘’This is a significant milestone towards realizing the aspirations of the 10-year Capital Market Master Plan, which aims to position Kenya as the premiere destination for capital and a fund-raising hub on the continent and beyond,’’ he added.
During the EAPI summit, Peter Waiyaki, an advocate said a Development Real Estate Investment Trusts (D-REIT) as a type of security that has its objective on the construction and development of real estate. Fusion Capital group is going to put East Africa on the map in terms of real estate, which will go a long way in increasing our economic growth rate.
“Fusion aims to access and deliver what the real estate market demands, whether it is middle income residential developments, luxury offices and shopping mall complexes,” said Daniel Kamau, executive director Fusion Capital. He said that they are constructing the real estate, which will be known as Greenwood Park in Meru County and it will constitute a commercial and a residential D-REIT.
The fusion capital commercial Development Real Estate Investment Trust (D-REIT) will be retailing at Sh17 per unit share whereby they have a target of raising funds between Sh1.15 billion and Sh2.3 billion. The residential D-REIT which is on its own as a separate listing will have a nominal value of Sh23 per unit share and will be targeting a maximum of Sh5.16 billion and a minimum of Sh2.58 billion.
Fusion Capital Limited Chief Executive, Luke Kinoti said, “As in investment instrument, a D-REIT maintains a stable return on investment that is not structured to ensure a sustainable income. We will now move fast to ensure the D-REIT is available to investors through an initial public offering (IPO).” This is to ensure that the private equity is able to raise the capital needed to fund the projects. The offer although, is restricted to professional investors who are to put in a minimum of Sh5 million.
The move to have a D-REIT outside the Nairobi metropolitan by Fusion Capital group is the first but surely not the last, as mega organizations will opt to dig into the other counties. This will see the real estate sector grow more in the country. For people who are looking to invest, they should consider going into real estate in other counties other than the Nairobi region, as this is where the money is right now.
The world economic forum reported that Kenya was the second best investment destination in Africa with some of the recognition going to the increased growth of the real estate sector. With the country growing its real estate sector, it is quite safe to say the future looks bright for our economy and as Fiona Sigalla, a worldwide economist said, “Real estate investment is certainly a vote of confidence on future activity.”