Investors on the Nairobi Security Exchange opted to place their money on alternative asset classes in the wake of the COVID-19 pandemic, the latest Capital Markets Soundness Report by the Capital Markets Authority shows.
According to the third quarter report covering July-September of 2020, the Real Estate Investment Trusts (REITs) recorded a 32.45% increase in turnover which rose to Kshs 33.31 million compared to Kshs 25.15 million recorded during the second quarter of April-June 2020.
“The COVID-19 environment called for diversification of investments amongst investors leading to increased investments in the listed REITs,” CMA noted.
The upward movement is also partly attributed to REITs being exempted from the Income Tax Act by the National Treasury in July this year.
“The REITs market also remains lucrative due to the exemption from income tax as stipulate in Section 20 of the Income Tax Act,” said CMA.
The Real Estate Investment Trusts was introduced by CMA in 2013 in order to increase investment towards real estate development.
The investment involves various investors pooling resources to buy units in a REIT and in turn, get their share of returns from income generated on a real estate development.
“Advocating of the REIT product as an alternative financing source for developers at a time when conventional lenders like banks have reduced their loan book exposure in sectors such as construction and hospitality due to the inflated risk brought about by the spread of coronavirus,” said CMA management.
CMA further expects the income tax exemption to make the product more attractive for local investors in the wake of the pandemic.
Government borrowing spree
According to the report the government borrowed Kshs 264.68 billion through the Treasury bond market in the quarter under review as investors showed interest in government papers.
According to the report, Seven (7) Treasury bonds were issued from July to September this year.
In issuing these bonds, the government sought to raise KShs. 180 Billion but received subscriptions worth KShs 364.92 Billion.
In the end, however, it accepted bonds worth KShs. 223.67 Billion, indicating a 61.29% acceptance rate.
Further, there was a tap sale during the quarter seeking to raise Kshs 40 billion from the market. However, bids received amounted to Kshs 40.26 billion, with the government accepting Kshs 41.01 billion.
In the secondary bonds market, during the first nine months of 2020, bond market turnover decreased by 4.79% with KShs 522.50 billion worth of bonds traded compared to Kshs 548.78 billion traded in the same period for the year 2019.