Buying I-REITs in Kenya: All You Need to Know When Investing

EDITOR’S NOTE: This article is part of our Money254 Partner Series produced in partnership with Vuka, an investment club that allows Kenyans to invest in the Acorn Student Accommodation I-REIT.

Income Real Estate Investment Trusts (I-REITs) are redefining the real estate industry in Kenya, making it easy for ordinary Kenyans to own and earn from financial assets that would otherwise be beyond their reach. 

I-REITs offer a unique pathway to earning rental income from prime real estate in Nairobi without the substantial capital and management headaches typically associated with property ownership. The benefits include passive income in the form of rental income, capital appreciation as with other forms of real estate, liquidity preservation, and ease of diversification. 

However, the key to reaping these benefits lies in knowing the structure of the I-REIT you choose, picking the ideal approach, and aligning everything with your investment goals. 

Understanding the ins and outs of I-REITs is essential for maximising your investment's success. So here is everything you need to know when buying I-REITs. 

1. Understand the I-REIT Structure

Different I-REITs will adopt varying structures, from the types of properties they invest to the amount of net profit they distribute to unitholders. Understanding how they operate, generate income, and distribute earnings helps you make informed investment decisions. 

For instance:

• If you know the sources of income, such as rental income and lease payments, you can predict the stability and reliability of your income streams from I-REITs. 
• When you know the type of property they invest in (commercial, residential, student hostels, industrial, and mixed-use), you can choose I-REITs that match your risk tolerance and return expectations. 
• You can predict your potential income and reinvestment opportunities if you understand the distribution policies, including regular dividend payouts and special distributions. 
• When you evaluate an I-REIT's expense ratios, you can assess how efficiently it manages its operational expenses relative to the income generated from its properties.

2. Choose a Suitable Method of Investing

There are several ways to buy I-REITs, from investing in NSE-listed I-REITs to using mutual funds and a platform like the Vuka Investment Club. It all depends on your preferred level of involvement in managing your investments. 

For example, buying I-REITs from the NSE requires a Central Depository System (CDS) account and gives you direct market participation. 

With the Vuka Investment Club, you can invest in I-REITs directly from your phone and benefit from professional management that conducts thorough research and manages portfolios to optimize returns and mitigate risks. The Vuka Investment Club, just like the NSE, is licensed and regulated by the Capital Markets Authority (CMA), providing investor protection and ensuring transparency in operations.

Each method offers unique benefits and potential drawbacks that can impact your investment experience and outcomes. Therefore, it is vital to take time to understand them all and choose the one that works best for you.

Read Also: "𝐖𝐢𝐭𝐡 𝐎𝐧𝐥𝐲 𝟑𝟎𝟎𝐊, 𝐈 𝐍𝐨𝐰 𝐄𝐚𝐫𝐧 𝐈𝐧𝐜𝐨𝐦𝐞 𝐅𝐫𝐨𝐦 𝐚 𝐌𝐮𝐥𝐭𝐢𝐛𝐢𝐥𝐥𝐢𝐨𝐧 𝐏𝐫𝐨𝐩𝐞𝐫𝐭𝐲 𝐢𝐧 𝐍𝐚𝐢𝐫𝐨𝐛𝐢; 𝐇𝐨𝐰 𝐈 𝐃𝐢𝐝 𝐈𝐭"

3. Investment Objectives

While the primary goal for I-REITs is to generate rental income that is paid out in the form of dividends, they also offer investors a unique opportunity for capital growth and portfolio diversification. 

Before buying I-REITs, it’s essential to recognise how these investments can support your financial goals. Clearly defining your objectives is the foundation of a successful investment strategy. 

For instance, if your goal is to secure a steady income stream, especially to supplement your salary, investing in I-REITs focusing on unique areas with a market gap, like student hostels can be ideal. 

And suppose you are aiming for capital appreciation. In that case, you can look for I-REITs that invest in properties in up-and-coming areas or those set for significant development that can result in substantial capital gains over time.

4. Risk Factors

Conducting thorough background research on an I-REIT before investing is essential. This will allow you to identify potential risks upfront and avoid investments that may not align with your risk tolerance. 

Additionally, you will be able to understand the growth potential of the I-REITs, especially if you are investing for a long-term goal. 

Take the Acorn Student Accommodation Income Real Estate Investment Trust (ASA I-REIT), for example. The US government, through the International Development Finance Corporation (DFC), recently extended a Ksh24 billion (approximately $180 million) loan to Acorn Holdings, the company behind ASA I-REIT. This significant cash injection will be used to extend the construction of student accommodation units - a demonstration of international trust and confidence in the I-REITs model. 

For investors in the ASA I-REIT, this funding is a welcome move as it signifies future growth. The additional units are expected to increase rental income, enhancing investors' overall returns. 

Read Also: 𝐖𝐡𝐚𝐭 𝐈 𝐋𝐞𝐚𝐫𝐧𝐞𝐝 𝐓𝐫𝐲𝐢𝐧𝐠 𝐭𝐨 𝐒𝐞𝐥𝐥 𝐌𝐲 𝐃𝐚𝐝’𝐬 “𝐌𝐚𝐠𝐮𝐭𝐚 𝐌𝐚𝐠𝐮𝐭𝐚” 𝐏𝐥𝐨𝐭 𝐟𝐨𝐫 𝟐 𝐘𝐞𝐚𝐫𝐬

5. Investment Horizon and Liquidity

Your investment horizon should align with the liquidity characteristics of the I-REITs you select. I-REITs will typically require you to lock your funds in the medium to long term, so as to fully enjoy the benefits of appreciation and passive income. 

This can still be done while preserving liquidity so that if you are investing with the intention of exiting after five years, for example, it is possible to do so with ease. The Vuka Investment Club, for example, has a target annual return of 11 percent - but preserves liquidity by making it easy to buy and sell units through the platform. 

Buying I-REITs Through Vuka Investment Club (Case Study)

The Vuka Investment Club is a platform that allows everyday Kenyans to invest in the Acorn Student Accommodation Income Real Estate Investment Trust (ASA I-REIT), an asset-backed and approved by the Capital Markets Authority (CMA) I-REIT. 

Launched in 2021, Vuka offers an easy way to invest in income-generating real estate properties managed under the Purpose-Built Student Accommodation (PBSA) brands Qwetu and Qejani. These brands are among the biggest names in student accommodation in Kenya, with several properties near major university campuses in Nairobi. 

Why Choose Vuka Investment Club?

Income Generation

Vuka targets an annual 7% dividend yield for its investors. This is achieved by maintaining low expenses and paying back at least 80% of the net rental earnings as dividends. Vuka allows you to reinvest your dividends by purchasing additional shares of the I-REIT and compounding your returns.

Capital Appreciation

The value of the real estate properties held by the I-REIT can increase over time due to factors such as inflation, growing demand, and property improvements. Vuka targets an annual capital appreciation rate of 4%. Combined with the 7% dividend yield, this results in a targeted total average return of 11% annually.

Read Also: 𝐕𝐮𝐤𝐚 𝐈𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭: 𝐈-𝐑𝐄𝐈𝐓 𝐇𝐞𝐥𝐩𝐢𝐧𝐠 𝐊𝐞𝐧𝐲𝐚𝐧𝐬 𝐎𝐰𝐧 𝐑𝐞𝐚𝐥 𝐄𝐬𝐭𝐚𝐭𝐞 𝐢𝐧 𝐍𝐚𝐢𝐫𝐨𝐛𝐢 𝐖𝐢𝐭𝐡 𝐚𝐬 𝐋𝐨𝐰 𝐚𝐬 𝐊𝐬𝐡𝟓,𝟎𝟎𝟎

Wealth Diversification

Vuka provides exposure to the real estate market, diversifying your portfolio beyond traditional financial assets like money market funds (MMFs), government securities, and bank deposits. This diversification helps spread risk and enhances overall portfolio stability.

Professional Management

Vuka is managed by Acorn Investment Management Limited (AIML), which is licensed by the Capital Markets Authority (CMA) as a REIT manager. This ensures professional and compliant management of your investments, which can translate to higher returns and minimized risks.

Higher Liquidity

Unlike traditional real estate investments, Vuka offers higher liquidity by allowing trading among members and through the NSE’s unquoted securities portal. This gives investors the flexibility to buy and sell shares as needed.

How to Get Started with Vuka Investment Club

1. Sign Up
   • Visit the Vuka website and share your contact details to receive an email invitation.
2. Create an Account
   • Click the link in the invitation email to create an account on the Vuka Portal.
3. Complete KYC (Know Your Customer)
   • Upload the required documentation, including a copy of your ID, KRA PIN certificate, and a passport-size photograph.
   • Complete a quick video verification.
4. Choose Your Subscription
   • Select the best subscription based on your desired investment amount. Vuka offers five membership categories:some text
     • Silver: Up to Ksh100,000 per year; joining fee Ksh299
     • Gold: Ksh100,000 - 200,000 per year; joining fee Ksh499
     • Platinum: Ksh200,000 - 500,000 per year; joining fee Ksh999
     • Platinum+: Ksh500,000 - 1 million per year; joining fee Ksh1,499
     • Diamond: Ksh1 - 2 million per year; joining fee Ksh1,999
   • You can also join Vuka as a chama and invest a minimum of Ksh300,000 annually.
5. Pay the Joining Fee
   • After selecting your membership category and completing the KYC requirements, pay the joining fee via M-PESA or bank transfer.
6. Start Investing
   • Once you've completed the process, you'll become a Vuka member and can start buying I-REIT units through the platform.

WRAPPING UP

Real estate has long been regarded as a relatively safe and lucrative investment, but due to its capital-intensive nature, it has traditionally been out of reach for many. However, this is rapidly changing with the advent of I-REITs and their innovative facilitative platforms like Vuka Investment Club. 

Today, with as little as Ksh5,000 per month, you can start investing in real estate and immediately reaping the benefits. To get started with I-REITs, visit the Vuka website here. 

Read Also: 𝐌𝐲 𝐍𝐞𝐰 𝐘𝐞𝐚𝐫'𝐬 𝐑𝐞𝐬𝐨𝐥𝐮𝐭𝐢𝐨𝐧 𝐖𝐚𝐬 𝐭𝐨 𝐁𝐮𝐲 𝐈𝐝𝐥𝐞 𝐋𝐚𝐧𝐝, 𝐍𝐨𝐰 𝐈 𝐉𝐮𝐬𝐭 𝐁𝐞𝐜𝐚𝐦𝐞 𝐚 𝐋𝐚𝐧𝐝𝐥𝐨𝐫𝐝