The choice of investment structure for real estate in Kenya has significant implications for taxation, liability, capital raising, and exit. This article outlines the principal structures used by developers and investors.
Special Purpose Vehicles (SPVs)
An SPV is a company incorporated for the specific purpose of owning a single asset or executing a single project. The SPV structure ring-fences the asset from the developer’s balance sheet, facilitates borrowing secured against the asset, simplifies investment transfer through a share sale, and provides a clean exit mechanism. A share sale in an SPV holding a property is typically subject to lower stamp duty than a direct property transfer.
Joint Ventures
Joint ventures between landowners, developers, and capital investors are a common development model in Kenya, particularly for large residential and mixed-use schemes. The joint venture agreement governs contributions, decision-making, profit sharing, and exit. The company structure is most common for projects of any scale.
Real Estate Investment Trusts (REITs)
The CMA approved Kenya’s REIT framework in 2013. Development REITs (D-REITs) finance property development; Income REITs (I-REITs) hold and manage income-generating properties. Income distributed from an I-REIT benefits from pass-through tax treatment under the Income Tax Act. REIT registration requires CMA approval and ongoing compliance.
Development Structures and Approvals
Residential subdivision schemes must comply with the Physical and Land Use Planning Act 2019, county planning requirements, and development approval conditions. Pre-sale of plots or units before physical and planning approvals are in place exposes developers to regulatory risk and purchaser claims.
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