The Finance Act 2026 has attracted considerable attention across Kenya, much of it understandably focused on taxation and its immediate implications for businesses and households. However, from a real estate perspective, we believe the more important question is not simply how much additional revenue the Act may raise.
The bigger question is this: Could the Finance Act 2026 accelerate a fundamental change in how real estate in Kenya is owned, financed and invested in?
Our view is that it could.
Taken together with the rapid expansion of the Affordable Housing Programme, renewed activity in Kenya’s capital markets, growing interest in Real Estate Investment Trusts (REITs), green bond issuances and increasing institutional participation in property, the direction of travel appears increasingly clear.
Kenya’s real estate market may be gradually moving away from a predominantly fragmented, individually owned and bank-financed model towards a more institutional, professionally managed and capital-market-driven industry.
The bigger Real Estate story may be REITs
In our view, one of the most significant Real Estate provisions in the Finance Act 2026 is the exemption of qualifying property transfers into registered REITs from Capital Gains Tax. This may appear technical, but its implications could be substantial.
Kenya has had a legal and regulatory framework for REITs for several years. Yet the sector remains relatively small compared with more mature property markets.
One of the persistent challenges has been the cost and complexity of transferring completed properties into REIT structures.
Where a property owner or developer incurs significant transaction costs when moving an asset into an investment vehicle, there is less incentive to undertake the transaction.Reducing that tax friction changes the economics.
Developers and property owners may find it easier to:
- Transfer completed income-generating assets into REITs;
- Release capital tied up in mature properties;
- Reinvest that capital into new developments;
- Attract pension funds and other institutional investors; and
- Create more accessible property investment opportunities for smaller investors.
This is not merely a tax concession. It could become an important mechanism for capital recycling within Kenya’s real estate sector.
Why capital recycling matters
The traditional Kenyan development model is relatively straightforward: A developer acquires land, raises capital, constructs a property and often retains ownership of the completed asset. The difficulty is that large amounts of capital can remain locked in completed buildings for years. A deeper REIT market offers a different model:
Develop → Complete → Stabilise → Transfer → Reinvest
Once a completed property has established tenants and predictable income, it can potentially be transferred into an investment vehicle designed to hold long-term income-generating assets. The developer can then recycle the released capital into another project.
This distinction is important. The skills required to develop a property are not necessarily the same as those required to hold and manage it for several decades. A more mature property market allows developers to focus on development while institutional investors provide the patient capital required to own stabilised assets over the long term. That is the model supporting many of the world’s deeper real estate markets.
From individual ownership to institutional Real Estate
For decades, Kenyan real estate investment has largely followed a familiar pattern. An individual or company acquires land, develops a property and holds the asset directly.
Financing typically comes from a combination of personal savings, bank debt, SACCO financing, buyer deposits and developer equity. That model will remain important. However, it is no longer the only model emerging in the market. Kenya is increasingly witnessing the growth of:
- Development and Income REITs;
- Infrastructure funds;
- Green and sustainability-linked bonds;
- Pension-backed real estate investments;
- Private equity participation;
- Institutional joint ventures; and
- Dedicated liquidity mechanisms for property investment vehicles.
The significance of the Finance Act 2026 is that tax policy now appears increasingly aligned with this transition. The Government is not simply collecting revenue from the property market. Through targeted incentives, it is also influencing the structures through which property capital may be organised.
The market is already moving
This institutional transition is not merely theoretical. Recent developments in Kenya provide important signals. The Kenya Mortgage Refinance Company successfully raised Kshs 3.0 billion through its second green bond tranche after receiving bids worth Kshs 9.4 billion. The Nairobi Securities Exchange has admitted new infrastructure investment vehicles to its Unquoted Securities Platform. New REIT structures continue to emerge. Pension funds are increasingly examining alternative assets. Property investment vehicles are also beginning to establish dedicated liquidity mechanisms to make entry and exit easier for investors.
Individually, these developments may appear unrelated. However, taken together, they point towards a broader shift: Real estate and infrastructure are increasingly becoming investable financial products rather than merely physical assets. That distinction could define the next phase of Kenya’s property market.
Private Developers are also repositioning
The potential impact of the Finance Act cannot be considered in isolation from the Government’s Affordable Housing Programme. The State has become a major participant in Kenya’s residential development market. Through the Affordable Housing Levy, government-backed projects, public land and large-scale procurement, the public sector is increasingly active in housing segments that were previously served primarily by private developers. This is changing the competitive environment.
We do not believe private developers will abandon residential real estate. However, we expect them to become increasingly selective about where they deploy capital. We are already seeing growing interest in:
- Premium and luxury residential developments;
- Mixed-use projects;
- Purpose-built student accommodation;
- Warehousing and logistics;
- Hospitality and serviced apartments;
- Healthcare real estate;
- Data centres;
- Institutional-grade commercial assets.
The rationale is straightforward: If the Government becomes a dominant provider of supported affordable housing, private capital will naturally seek segments where it has a stronger competitive advantage and where returns better compensate for development risk. This may help explain why the future of private development in Kenya could become increasingly specialised.
From bank debt to Capital Markets
Perhaps the most important long-term transformation concerns how property projects are financed. Kenyan developers have historically relied heavily on commercial bank debt. This has created persistent challenges, particularly during periods of high interest rates or constrained credit.
Real estate development is capital intensive and often requires funding over several years before a project generates stable income. Short-term and expensive bank financing is not always well matched to this development cycle. The growth of capital-market instruments could therefore become critical.
A future real estate financing ecosystem may increasingly include:
- REIT equity;
- Green bonds;
- Infrastructure funds;
- Pension capital;
- Private equity;
- Institutional joint ventures;
- Other collective investment structures.
This would not eliminate bank financing. Rather, it would create a broader and potentially more resilient pool of capital available to the sector.
What does this mean in the Short Term?
In the immediate term, we expect investors and developers to spend more time reviewing the structures through which they own and finance property. The market could see:
- Greater interest in qualifying REIT structures;
- More scrutiny of the tax efficiency of direct property ownership;
- Increased interest in institutional partnerships;
- Greater focus on income-producing assets capable of entering investment portfolios; and
- More sophisticated conversations around development exits.
This does not mean every building will suddenly become part of a REIT. Kenya’s REIT market still faces challenges, including investor awareness, liquidity, asset scale, governance and the availability of institutional-quality properties. However, reducing transaction friction removes one important barrier.
The Long Term impact could be far more significant
Over time, Kenya could gradually move towards a market characterised by:
Individual ownership → Institutional participation
Standalone buildings → Diversified property portfolios
Capital locked in completed assets → Capital recycling
Direct property ownership → REIT and fund participation
Heavy reliance on bank debt → Multiple sources of long-term capital
Fragmented management → Professional asset management
This transition will not happen overnight but policy changes that alter transaction costs and investment incentives can significantly influence where capital flows over time.
The risks should not be ignored
Institutionalisation is not automatically positive in every respect. A more sophisticated property market requires strong governance, transparent valuations, credible asset management and genuine liquidity. Kenya must also ensure that institutional growth does not marginalize smaller property investors who have historically played an important role in supplying housing and commercial space.
There is also a risk that developers concentrate too heavily on assets that can be packaged for institutional investors while less profitable but socially necessary market segments remain underserved. The objective should therefore not be to replace individual property ownership. It should be to broaden the market.
Kenya needs room for individual landlords, homeowners, private developers, REITs, pension funds, banks and capital-market investors. A deeper market should offer more routes to participate in real estate, not fewer.
Our View
At Stable Merchants, we believe the Finance Act 2026 should be viewed as part of a broader transformation taking place in Kenya’s property market.
1. The Affordable Housing Programme is reshaping residential development.
2. Capital markets are creating new financing structures.
3. Institutional investors are becoming increasingly active.
4. REITs are gradually gaining visibility.
5. Developers are diversifying into specialised and income-generating asset classes.
Taken together, these developments point towards a more sophisticated real estate market. The Finance Act 2026 may therefore prove significant not simply because of the taxes it changes, but because of the investment behaviour it could encourage. The Kenyan real estate market of the next decade may be increasingly institutional, professionally managed and connected to the capital markets.
If that transition is managed well, it could unlock deeper pools of capital, improve market liquidity and create new investment opportunities. However, it also raises an important question for every developer, landlord and property investor: Are we positioning ourselves for the real estate market of today or for the one that is now emerging?
Stable Merchants Limited
Defined by Value
