Is Your Chama Growing Wealth? See How I-REITS Can Boost Passive Income

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.

One of the biggest challenges Chamas face today is making their traditional savings work harder for them. 

Often, Chama members contribute diligently, only for the funds to lie idle in a bank account, waiting for the next big project or for distribution in a merry-go-round cycle. 

This approach, while safe, means that the money isn't generating significant returns. 

Instead of allowing your Chama’s funds to sit idle, why not explore income-generating, asset-backed investments like Income Real Estate Investment Trusts (I-REITs)? I-REITs offer an opportunity to enhance your Chama’s income, ensuring that your savings are safe and growing.

Understanding How I-REITs Work

Income Real Estate Investment Trusts (I-REITs) are pooled investment vehicles that allow individuals and groups to invest in income-generating real estate without directly buying property. 

I-REITs collect funds from investors, which are then used to purchase prime real estate assets like commercial buildings and rental properties. The income generated from these properties, usually in the form of rent, is then distributed to investors as dividends.

Unlike traditional savings options like Saccos, bank deposits, or Money Market Funds (MMFs), I-REITs offer the advantage of real estate investment without needing large capital outlays. For example, with the Vuka Investment Club, your Chama can invest in I-REITs with as low as Ksh300,000 per year. If you are five members in a chama, that comes to about Ksh5,000 per month per member. 

For Chamas, I-REITs can be particularly valuable. Typically, Chama funds are accumulated while members wait for the right project, which means the money isn't working to generate returns during this period. 

Imagine a Chama of 12 members, each contributing Ksh10,000 monthly. Over a year, they plan to amass Ksh1.44 million, aiming to buy land this year. They will then repeat the process for three more years before they can save enough to actualize their plan, say to build bedsitters in Kitengela. 

Instead of letting this Ksh1.44 million (Ksh4.32 million over three years) sit idle, the Chama could invest in I-REITs. This would generate rental income while they wait to purchase the land and allow them to benefit from any appreciation in the value of the I-REITs they hold.

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

5 Benefits of I-REITs for Chamas

1. Passive Income

I-REITs provide a unique opportunity for Chamas to earn rental income without the hassle of directly managing property. By paying dividends from rental income, I-REITs give your Chama a backdoor into real estate investment, bypassing the need for a significant upfront capital investment. 

Instead of waiting to reach a savings goal before making a large purchase or starting to invest, your Chama can start earning income early on. 

Additionally, as the I-REITs acquire more units and rental income grows, so will the dividends your Chama receives.

2. Capital Appreciation

Real estate typically appreciates over time, and I-REITs are backed by physical assets such as the Qwetu and Qejani Hostels which are under the Acorn Student Accommodation I-REIT. As property values rise, so does the value of I-REIT units. 

For example, if your Chama buys 25,000 shares of an I-REIT at Ksh20 per share, you would invest Ksh500,000. If the share price increases to Ksh25, your investment would be worth Ksh625,000—a Ksh125,000 profit, excluding dividends. 

This capital appreciation boosts your Chama’s income, protects your savings from inflation, and enhances your Chama’s net worth in the long run.

3. Liquidity

Liquidity, or the ability to quickly access your savings, is a significant concern for many Chamas. Whether it's responding to an investment opportunity, a change in investment priorities, or helping a member in an emergency, having accessible funds is crucial. 

I-REITs offer a solution by providing liquidity through the sale of shares on the security exchange and among members, allowing your Chama to meet these needs without sacrificing returns.

4. Diversification

Diversification is key to managing risk and ensuring steady growth in any investment portfolio. For Chamas, diversifying savings and investments can provide a safety net against market volatility and offer multiple income streams. 

I-REITs allow Chamas to diversify into real estate—a typically stable and appreciating asset class—without requiring direct property ownership. This diversification can safeguard your Chama’s savings and help balance risk across various investment avenues.

5. Regulated by the Government

In Kenya, I-REITs are regulated by the Capital Markets Authority (CMA), a government body that ensures transparency and protects investors' interests. 

This regulatory oversight gives Chamas confidence that their investments are secure, offering peace of mind as they explore this high-yield investment option.

6. Tax Exemption

 I-REITs, including Vuka, are exempt from income tax, stamp duty, value-added tax, and capital gains tax. The only tax applicable is withholding tax on interest income and dividends. 

Read Also: My Brother Missed a Hostel Slot in Nairobi, This Led Me to the Best Investment Decision

How To Invest In I-REITs as a Chama (Vuka Case Study)

Investing in I-REITs can be a strategic move for your Chama, offering a way to grow your collective savings through real estate without direct property ownership. Here’s a step-by-step guide on how your Chama can get started:

1. Align Members and Choose a Representative

Before investing in I-REITs, ensure that all Chama members are informed about how the investment works. Open discussions will help align everyone’s expectations and financial goals. 

Once all members are on the same page, select a representative who will handle the investment process on behalf of the group. 

2. Choose the Right I-REIT

Research the available options and select an I-REIT that allows for Chama investments and aligns with your Chama’s financial goals. Consider factors such as the type of properties the I-REIT invests in (residential, commercial, retail), historical performance, dividend yields, and the management team’s expertise.

For instance, consider Vuka Investment Club, a Kenyan platform regulated by the Capital Markets Authority (CMA). It offers a convenient and transparent platform for buying and selling Acorn Student Accommodation Income Real Estate Investment Trust (ASA I-REIT) for both individual investors and Chamas. 

Vuka serves as a gateway to investing in income-generating real estate properties, starting with the Purpose Built Student Accommodation (PBSA) brands Qwetu and Qejani. These are two major student accommodation brands in Kenya, with over ten properties near Nairobi's major university campuses. 

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

3. Open a Chama Investment Account

Once you have selected an I-REIT, the next step is to open a Chama investment account with Vuka or the chosen platform. This account will facilitate the purchase and management of your I-REIT shares. 

Ensure that the account setup process is in compliance with regulatory requirements and that all necessary documentation is provided. Most accounts will typically require you to pay joining fees. For instance, Chamas joining Vuka are obligated to pay a one-time fee of Ksh500 but are excluded from paying any annual fees. 

To join, simply visit the Vuka website and sign up by providing your name, email, and phone number. From here, the Vuka customer care team will reach out with more information, invite you to join the exclusive group, and provide you with the registration link.

4. Make the Investment

With your Chama investment account set up, proceed to purchase shares in the selected I-REIT. Decide the amount to invest based on your Chama’s financial capacity and investment goals. The investment can be made through the platform’s online portal or by contacting their customer service for assistance.

For instance, in the case of Vuka, your Chama will need to invest a minimum of Ksh300,000 per annum. 

5. Reinvest Dividends

One of the key benefits of I-REITs is the rental income distributed as dividends. Reinvesting these dividends can significantly boost your Chama’s returns over time. 

To ensure maximum growth, opt for dividend reinvestment plans. This will allow your Chama to acquire additional shares, increasing income and potential capital appreciation.

I-REITs investment platforms, such as Vuka, allow for this option by giving members a chance to buy more shares/units instead of withdrawing their dividends. Additionally, Vuka doesn’t charge Chamas any transaction fees when purchasing I-REIT units.

Would you like your chama to get in on the benefits on I-REITs, get started here