Real estate as a stock investment opportunity

Given the popularity of real estate as an asset around the world, it is perhaps surprising that there are not many pure, real estate firms listed on the Nairobi Securities Exchange.

However, there are a number of  firms listed on the NSE which offer indirect exposure to real estate through assets held on the balance sheet. Notably, and Superior Homes (Kenya) Ltd 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 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.

Superior Homes is a mature company with a proven track record. Last year the company was placed sixth out of the Top 100 small- and medium-sized enterprises in Kenya.

Importantly, it operates in the upper mid-level segment of the residential real estate market.  Its flagship Greenpark Estate development in Athi River is  known to many in Nairobi. The development is at an advanced stage, with 520 houses built and sold, and infrastructure in place for the remaining 200 units to be completed by 2020.

On the intention to list, the company’s owner, Ian Henderson, says: “Business is all about timing and now the time to list is right... 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....”

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 Ltd)