Real estate as a stock investment opportunity in Kenya

Given the popularity of real estate as an asset class around the world it is perhaps surprising that there are not more pure real estate firms listed on the Nairobi Securities Exchange. On closer inspection however, there are a number of those firms listed on the NSE which offer indirect exposure to real estate through assets held on the balance sheet.

There appears to be a further increase in listings in this sector, and Superior Homes (Kenya) Limited has become the latest pure real estate company to announce it’s intention to list on the NSE.

For investors, a stock exchange listing gives liquidity to a real estate investment, meaning they can put cash in and get it out to suit their own liquidity requirements and to suit their views on the market. It also offers higher levels of accountability and corporate governance so that investors can feel more secure.

For real estate companies, the listing offers tax incentives as well as the ability to tap vast pools of equity and debt capital, in particular from pension funds and international funds. This money can be used to further develop their projects and this financing generally comes in at a lower cost for a listed company than for a private company. The profile raised with a listing also offers a kind of “free marketing” that helps to drive sales and this becomes a win-win for existing and new shareholders.

It is an exciting development that Superior Homes in coming to market, it is a mature company with a proven track record of sales and profitability, and conservative accounting policies. Sales are only booked in the company’s accounts once the final payment from the buyer has been made. Last year Superior Homes made it to position six out of the Top 100 small and medium sized enterprises in Kenya.

Importantly it operates in the upper mid-level segment of the Kenyan residential real estate market where it is generally considered that growth will be fastest, due to increasing disposable income and more affordable mortgage financing in Kenya. Superior Homes’ flagship Greenpark Estate development, on Mombasa Road at Athi River, is well known to many in Nairobi. The development is in advanced stages with 520 houses having been built and sold, and all infrastructure is in place for the remaining 200 units that will be completed by 2020.

Commenting on the intention to list, Ian Henderson, the owner of Superior Homes said ‘business is all about timing and now the time to list is right. Through the dedication and expertise of our senior management team and the loyalty and sheer hard work and determination of all of our staff, we have arrived at a launch platform with the capability and the capacity to reach for the stars.

By listing on the NSE we will be able to attract additional talent and secure the necessary finances to build quickly on our achievements and become the major force in Kenyan real estate. We are all very excited and much looking forward to the challenges ahead’.

If Henderson’s plans materialise there will be opportunities for the full spectrum of investors ranging from Superior Homes site staff with a few thousand shillings up to the largest pension funds with many millions and this listing could blaze a trail for other real estate developers in the years to come.

(Edward Burbidge CFA is the Chief Executive Officer, Burbidge Capital Limited)

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