Why pension funds are betting big money on real estate

Rosslyn houses
Rosslyn Springs, a gated estate by the KenGen Staff Retirement Benefits Scheme. 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 population have seen house prices and rents more than tripling over the past decade – a trend that is expected to hold in coming years.

This has seen pension managers racing to grab a bigger share of the market with the latest contestant being the KenGen Staff Retirement Benefits Scheme, which has built a Sh1.3 billion estate in Nairobi.

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

The estate comprises a mix of 17 units that are 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 – which is putting up a Sh3.4 billion mixed-use development in Machakos County.

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

These assets provide “all weather” security for pension funds by delivering better yields than bonds in higher growth environments while proving more defensive than stocks in lower growth periods.