Real Estate Investment Structures in Kenya: REITs, JVs, and SPVs

Real estate investment structures in Kenya, namely SPVs, joint ventures, company structures and REITs, carry different consequences for liability, capital raising, tax and exit. The right choice depends on the scale of the project, the number of investors, and whether the goal is a single development or an income-producing portfolio.

Real Estate Investment Structures in Kenya: The Single-Purpose Company (SPV)

An SPV is a company incorporated to own one asset or deliver one project. It ring-fences the asset from the developer’s wider balance sheet, allows borrowing to be secured against that asset alone, and allows investors to exit by selling shares rather than conveying the property. Whether a share sale is cheaper than a direct conveyance depends on the transaction and on current Stamp Duty Act treatment, so confirm the duty position for each deal rather than assuming a fixed saving.

Foreign Investors and the Article 65 Leasehold Limit

Article 65 of the Constitution governs landholding by non-citizens. Article 65(1) allows a non-citizen to hold land on leasehold tenure only, with no lease exceeding ninety-nine years. Article 65(2) provides that any provision purporting to confer a greater interest is regarded as conferring a ninety-nine year lease and no more. Article 65(3)(a) provides that a body corporate is regarded as a citizen only if it is wholly owned by one or more citizens.

A Kenyan SPV with any foreign shareholder is therefore a non-citizen for landholding purposes and is subject to the ninety-nine year cap. Incorporating locally does not allow the company to hold freehold, so the structure must be built around the leasehold limit from the start, including how the parties will deal with the unexpired term over a long investment horizon. One common approach is a joint venture between a wholly Kenyan-owned landholding entity and a foreign-funded SPV that takes development or operating rights under a long lease, but it must be tailored to the actual commercial terms.

Joint Ventures

Joint ventures between landowners, developers and investors are common for large residential and mixed-use schemes, where a landowner contributes land in exchange for a share of the completed development. The agreement should govern each party’s contribution, the profit-sharing or unit-allocation formula, decision-making, and exit. A joint venture can run through a jointly owned SPV or as a purely contractual arrangement. The choice affects liability: without a corporate vehicle, a landowner can be directly exposed to project-level liabilities. If a joint venture SPV has any foreign shareholder, the Article 65 limit applies to it however small that shareholding is. Our guide to joint venture agreements in Kenya covers drafting in more detail.

Company Structures

A standard limited liability company is used where a developer holds several projects or an ongoing development business under one entity. It offers limited liability, governance rules under the Companies Act, and simple routes for bringing in investors through share allotment. The trade-off against an SPV per project is that the risks of one project are not ring-fenced from the others.

Real Estate Investment Trusts (REITs)

REITs are regulated by the Capital Markets Authority (CMA) under the Capital Markets (Real Estate Investment Trusts) (Collective Investment Schemes) Regulations, 2013, made under the Capital Markets Act. The Regulations distinguish two kinds of scheme. A D-REIT scheme is a development and construction real estate investment trust scheme authorised as such by the CMA under regulation 18, used to fund property development. An I-REIT scheme is a real estate investment trust scheme authorised as such by the CMA, and its permitted investments are set by regulation 65. Eligible investments for a D-REIT are set by regulation 76.

The Regulations also limit the real estate a trustee may hold. “Eligible real estate” in Kenya means freehold, or leasehold with a certificate of title or certificate of lease (or a registered long-term lease) and an unexpired residual term of at least twenty-five years when acquired and when the scheme is authorised. The tax treatment of REIT distributions depends on the Income Tax Act as amended, so confirm the current position for the specific structure before relying on any general statement about pass-through treatment.

Development Approvals

Under Section 57(1) of the Physical and Land Use Planning Act, 2019, a person shall not carry out development within a county without a development permission granted by the county executive committee member. Under Section 57(2), commencing development without permission is an offence carrying a fine of up to five hundred thousand shillings, imprisonment of up to two months, or both. Section 67 creates further offences, such as developing after permission has been revoked or breaching permission conditions.

Selling plots or units before approvals are in place also exposes a developer to purchaser claims if the eventual approval differs from what was marketed in configuration, density or amenities. A phased sales programme should follow the approval timeline for each phase.