Coming soon to Uganda’s stock market: Real Estate Investment Trusts

In about two months, Uganda’s stock market will be able to list a new security that makes it possible for institutions and individuals to invest in real estate, and earn high dividend yields that are exempt from taxation.

The Capital Markets Authority approved regulations governing real estate investment trusts (REITs), according to Keith Kalyegira, the authority’s chief executive. Kalyegira was speaking on a panel at the Uganda Housing Finance Conference last week.

Kalyegira said the regulations are being gazetted, a process that should take no more than two months.

Reits are an investment vehicle that allow investors to buy into real estate projects, and undertake real estate development and construction projects. They also allow investors to operate real estate assets and earn income from them.

Earnings from the trusts are also exempt from income tax since reits are classified as collective investment schemes. The Income Tax Act exempts income earned from collective investment schemes from taxation as long as it is paid out to members.

The regulations approved by the CMA allow two types of trust schemes: the development and construction real estate investment trust scheme (a D-REIT), and an income real estate investment trust scheme (an I-REIT).

D-Reits will focus on developing and constructing real estate projects, which will then be sold to generate returns for investors. On the other hand, the focus of I-Reits is long-term investment in income generating real estate projects, distributing rental and lease income to its investors.

The regulations require that a D-Reit should, within a year after its authorisation, have invested at least 30% of its total assets in development and construction projects, or income producing real estate it has developed or constructed.

On the other hand, I-Reits should earn at least 70% of their income from rent, licence fees or access and usage rights from investments in real estate at least two years after their authorisation. This is so they focus their investments in real estate, as they are also allowed to invest in cash, deposits, bonds, securities and money market instruments.

And, in what could make them attractive to investors, the regulations require I-Reits to pay a minimum of 80% of their earnings as dividends to their investors.

They are open to both professional investors and the general public, while D-Reits securities can only be offered to professional investors, even when listed on the stock exchange.

Only five African countries currently have Reit structures, with two of those – Kenya and Tanzania – in East Africa (the others are Ghana, Nigeria, and South Africa). Kenya’s Reits regulation was passed in 2013, and the first issue on the Nairobi Securities Exchange was in November 2015. The second issue was this July.

Lack of local content in construction sector and cheap housing finance irks finance minister