Industry News

Cash-Rich Pension Funds Surge into Real Estate Market

Pension managers are racing to grab a bigger share of the market.

Updated on

August 3, 2015

Rosslyn Springs Nairobi — Rosslyn Springs, a gated community in Nairobi. PHOTO | FILE

Strong returns from the Kenyan property market are increasingly luring pension funds to raise their real estate investments as they race to diversify their income streams.

Rapid urbanisation and the fast-expanding middle-class have seen house prices and rent more than triple over the past decade – a trend that is expected to hold in coming years.

This has led pension managers to compete for a larger market share, with the KenGen Staff Retirement Benefits Scheme recently constructing a Sh1.3 billion estate in Nairobi.

Rosslyn Springs, a gated community of four-bedroom homes, targets home buyers seeking residential property in a sparsely populated suburb not far from the city.

It has 17 units selling for Sh79.7 million, Sh79.9 million, and Sh83.5 million.

KenGen’s staff pension fund follows in the footsteps of the Kenya Power Pension Fund, which is developing high-end properties through its real estate subsidiary Sakile Properties.

Sakile has developed Bogani Park in Karen, Runda Park, and Loresho Ridge.

Other pension funds that have in recent years committed billions of shillings into the real estate market include the National Social Security Fund (NSSF), the KCB Pension Fund, and the Safaricom Staff Pension Scheme.

The project, which was launched in June, comprises a shopping mall – Crystal Rivers – and a residential estate that will be located on Mombasa Road.

The rising interest in real estate signals a shift by pension managers away from their holdings of stocks and bonds into “real” assets such as property and infrastructure.

These assets provide security for pension funds by delivering better yields than bonds in higher-growth markets while proving more defensive than stocks in lower-growth periods.

A survey by Hass Consult shows that land prices in Nairobi have surged 5.6 times since 2007 – meaning land investments have outshined both the stock and bond markets.