Real estate trusts get tax exemptions

Listed trusts that invest in real estate will not have to pay taxes for the companies they use to make investments.

Under the National Treasury Cabinet Secretary Henry Rotich’s Finance Bill 2019, Real Estate Investment Trusts will get income tax exemption extended to companies they use to hold their properties.

“The proposed amendments will ensure that the objectives of REITs are fully achieved as it exempts the income of investee company fully controlled or owned by the REITs,” the Finance Bill read in part.

Investment schemes

REITs are collective investment schemes in real estate, structured as a trust where an investor owns rights or interests in property in the form of units and earns returns from income or capital gains.

The trust pools funds from individual investors acquire and operates income-generating real estate, and distributes the income derived from the properties as dividends.

Kenya’s first listed trust is owned by Stanlib dubbed Fahari iReit.

The Trust owns Greenspan Mall, Bay Holdings and Highway House says and recently bought Starling park properties, in Lavington for Sh850 million.

It also acquired 67 Gitanga Place, raising its real estate assets from 67 per cent to 90 per cent of the portfolio.

This is in compliance with the Capital Markets Authority (CMA) regulations that require the fund to allocate at least 75 per cent of its net assets to income-generating real estate.

It expects to earn Sh73.8 million from the recently acquired building with an annual yield of 8.59 per cent.

Despite the increase in net profit from Sh171 million to Sh193 million, distributable earnings declined from Sh149 million to Sh127.9 million.

This was as a result of a temporary increase in vacancies as well as tax leakages in the form of irrecoverable withholding tax at property subsidiary company level.

Fusion Capital failed to raise Sh2.3 billion it targeted from its Development Real Estate Investment Trust (D-REIT).

The firm only achieved a 38 per cent subscription collecting Sh873 million with only four investors against the requirement of seven.

The company had hoped to use the proceeds of the D-Reit to finance the development of Greenwood City, which is a mixed-use real estate project in Meru County.