Challenges and Prospects of Real Estate Investment Trusts (Reits) Financing of Real Estate in Kenya

Abstract

A REIT (real estate investment trust) is a real estate firm which acquires, constructs or manages different types of buildings that are put up in various locations. REITs are a form of financing instruments from firms that source funds to build or acquire real estate assets which they sell or rent to generate income for the investors whom invested their funds in the firm. The income that is generated by the firm over the period is then distributed to the shareholders at the end of the financial year. The main aim of this study is to investigate the various challenges and prospects that such an investment can attain within the real estate sector in the country. This is a new venture/investment that has been introduced in the Kenyan market and this study will be able to identify the various challenges that affect the REITs and prospects that such an investment holds once it picks up in the country. Based on the type of research to be carried out the best research design that would be appropriate for this research is an exploratory study research design approach due to the fact that this is a very new investment that has been introduced into the Kenyan market. The population of the study was 156 developing firms within Nairobi and a sample of 70 was selected for a representative of the population. Both primary data through the use of questionnaires and secondary data was used in the study. The challenges that have been identified are policy, regulations and procedures, high dividend pay-out, culture of capital structure within the organization and market awareness of the investment vehicle. The prospects that have also been identified by this study were increased commercial and residential properties as a result to increased supply of real estate properties within the country, new pool of investors in real estate, huge source of capital for various real estate projects that require high source of income funding and high liquidity in the real estate sector. Interest rates, inflation rate and market capitalization were analyzed and concluded that these factors have a significant effect of on the REITs financing of real estate in Kenya. Further studies should be done on the various factors that affect the REITs financing of real estate in Kenya.