Kenya’s push to build a vibrant real estate investment trust (REIT) market has been blunted by a tax regime that industry players describe as structurally punitive, raising the cost of setting up and maintaining REIT vehicles even when the government has offered targeted incentives.
- •During a two-day conference organized by the REITs Association of Kenya (RAK), participants noted that temporary exemptions on stamp duty and other transaction taxes had previously led to a modest increase in REIT activity, according to industry groups.
- •However, when many of those incentives lapsed in 2022, deal flow in the sector slowed.
- •They urged policy makers to create a more consistent tax framework that would fortify stability and certainty, attracting more investors.
Speakers at the event emphasised that a favourable tax framework is one that lowers transaction costs, protects investor returns, and aligns with global standards. Without such measures, the promise of REITs as a bridge between domestic investors and large‑scale infrastructure will remain unfulfilled.
A REIT owns, operates, or finances income-producing real estate, allowing investors to buy shares in commercial properties such as offices, shopping centers, or apartment complexes. They offer a way to earn dividends and gain exposure to the real estate market without the responsibilities of direct property ownership, providing liquidity and portfolio diversification through publicly traded shares.
The African REIT market is relatively smaller than other regions of the world and has a total market cap of US$30 billion, with 95% of that value set in South Africa alone. Kenya’s REIT market cap stands at US$189.5 million.
In Kenya, registered REITs are exempt from corporate income tax on qualifying property income, and transfers of property into REIT structures can qualify for stamp duty and VAT exemptions. However, investors still contend with withholding tax on dividend distributions and capital gains tax on certain property transfers. These residual taxes erode effective yields and reduce the attractiveness of REITs relative to direct property ownership or alternative investment vehicles.
Market stakeholders have been vocal in calling for the reinstatement of stamp duty exemptions. Representatives of the REITs Association of Kenya highlighted that eliminating the 4% levy on property transfers within REIT structures would materially lower entry costs and improve the economics of listing infrastructure assets.
Conference discussions also stressed the importance of tax clarity, consistency, and harmonisation across jurisdictions. Ambiguities over the taxation of wholly owned subsidiaries, dividend distributions, and capital gains create planning risks for long-term investors. Given that many infrastructure projects are cross-border; spanning power, ports, and transport corridors, harmonised tax frameworks can reduce double taxation and align incentives across African markets.
Invest in what?
The REIT market is also being constrained by regulatory ambiguity over what qualifies as an eligible asset. During a panel discussion, industry stakeholders warned that inconsistent interpretations risk narrowing the scope of investment. Current regulations draw distinctions between “real estate” in the legal sense and broader REIT-eligible assets, leaving room for differing views.
The uncertainty has created a cautious environment in which investors default to traditional property classes such as land and buildings, limiting innovation in sectors like digital and telecom infrastructure. The attending participants are now pushing for clearer policy direction to explicitly include non-traditional assets such as telecom towers and data centers, arguing that expanding the definition would align Kenya with more developed REIT markets.
In jurisdictions like the United States, such infrastructure assets are already embedded within REIT frameworks, helping drive diversification and deepen investor participation. By contrast, Kenya’s current regime leaves these categories in a regulatory grey area, dampening their inclusion despite growing demand for digital infrastructure investment.
Beyond asset definitions, structural requirements such as minimum public float thresholds and investor participation rules are also shaping market development. Regional comparisons suggest that while such rules are designed to broaden ownership and deepen capital pools, they may be ill-suited to early-stage markets with limited investor bases. REIT stakeholders urged for a more flexible approach such as allowing privately held or closely held REITs in the initial phases could help build momentum before transitioning to wider public participation, offering a more gradual path toward a fully developed REIT ecosystem.
Reform the Structure
Kenya’s REIT framework is also being weighed down by structural uncertainty, as market participants grapple with the legal complexity of trust-based vehicles that underpin the regime. Practitioners said that the concept of an “incorporated common law trust” remains poorly understood, creating confusion not only among lawyers and fund managers but also among potential investors.
“There is a lot of confusion around the law of trust in Kenya, and if it’s not well understood by practitioners, then even the investment public finds it very difficult to understand,” said Kimani Njane, a lawyer.
The ambiguity has made it harder to build confidence in REIT structures, compounding the tax-related barriers that have already slowed adoption. To tackle this confusion, regulators and industry players are now looking to recent reforms in collective investment schemes as a potential blueprint for change. Updated rules in 2023 expanded the range of permissible structures to include companies and limited liability partnerships, offering greater flexibility than the traditional unit trust model that REITs currently rely on.
Comparisons with more mature markets also shaped the debate. In jurisdictions such as the United States and the United Kingdom, REITs are typically structured as companies, a model credited with supporting deeper market growth and stronger investor participation. Meanwhile, hybrid structures pioneered in markets like Australia, known as “stapled securities”, combine income-generating assets with development arms.
The direction of reform in Kenya appears to be shifting toward a corporate REIT model, a move industry executives say could address both governance and alignment concerns. A company structure would allow promoters to retain clearer strategic control while providing investors with more familiar oversight mechanisms such as boards and shareholder rights.
If combined with a more coherent tax framework, such changes could revive interest in REITs and position them as a viable channel for mobilizing long-term capital into the country’s property and infrastructure sectors.
