Low rental yields for buildings in Nairobi and long-term holding by institutional investors are the major factors behind the poor performance of real estate investment trusts.
A new analysis by Sterling Capital shows the price of Reits quoted on the Nairobi Securities Exchange had declined by 50 per cent to just Sh10 – compared to the initial price of Sh20 – since listing with little activity on the counter.
The Reit counter trades low volumes with its monthly turnover being a third of Safaricom’s daily turnover, said the report prepared by corporate finance analyst Wangechi Njogu.
“A major challenge has been the low supply of (Reit) units due to a majority of the underlying Income-Reit investor composition being institutional investors, who comprise close to 70 per cent of the investor pool and they tend to take a long-term view,” said Ms Njogu. She added that inadequate understanding of the asset class had also contributed to low interest in Reits.
Ms Njogu said the way to revive the Reits market was by increasing investor awareness and understanding of the benefits of the asset class.
“People don’t really understand the product, so the first thing naturally is to ensure that they know what it is, are aware of its existence in the market. Otherwise they will shy away. Demand can only be realised if we promote awareness,” Ms Njogu said.
Stanlib is the only listed Reit on the Nairobi Securities Exchange.