Lawmakers shot down a new proposal from the Nairobi Securities Exchange (NSE) Plc and other stakeholders to reinstate stamp duty exemption on property purchased under Real Estate Investment Trusts (Reits).
A Reit is a company that owns, operates or finances income-generating real estate. Reits pool capital investors who earn dividends from real estate investments. The investors do not individually buy, manage or finance any properties.
The National Assembly Finance and Planning Committee said the proposals by the NSE-led group can only happen through an amendment to the primary law, the Stamp Duty Act.
The proposal for the changes through the Finance Bill 2024 was jointly placed before the committee by the NSE, the Kenya Association of Stockbrokers and Investment Banks (Kasib), the Reits Association of Kenya, the Custodians’ Association, Central Depository and Settlement Corporation of Kenya and Administrators & Pension Trustees Association of Kenya.
“The committee noted the proposal but observed that the amendment proposed cannot be done in the Finance Bill as currently published,” the Kuria Kimani-led team wrote in its report on Finance Bill 2024 whose debate kicked off on Wednesday.
The proponents had argued that the return of the tax benefit, which was in force for five years through December 2022, would increase uptake of the Reits — the instruments that allow individuals to invest in large-scale, income-generating real estate projects.
NSE and its partners argued the stamp duty exemption, among other reliefs, helped attract four Reit funds with a market value of Sh27 billion, with more than 4,000 investors participating in their issuance of the units (the equivalent of shares).
Market regulator, the Capital Markets Authority, has in the past also backed the relief of stamp duty on acquiring assets for Reits.
Stamp duty is charged to the buyer at the rate of a percentage of the value of the asset.
Kenya’s REIT market is currently subdued partly due to large capital requirements of Sh100 million for trustees and minimum investment of Sh5 million.
Proponents of the reinstatement of the exemption argue the benefit will make it cheaper for the property funds to buy more properties. Reits are broadly classified into two categories: Development or D-REITs where investors pool funds to buy or construct properties to sell for capital gains, and investment or I-REITs where investors build or acquire property for generating rental income.
ICEA Lion Asset Management’s (ILAM’s) Fahari was delisted from the NSE in February while trading in LAPTrust’s Imara I-Reit remains restricted.
Acorn Holdings’ Student Accommodations (ASA’s) I-Reit and D-Reit trades on NSE’s Unquoted Securities Platform (USP).