New Retirement Benefits Authority rules have given fresh momentum to Kenya's property sector, which has for the past five years been depressed by increased supply and lack of buyers.

Under the rules enacted in October last year, retirement benefits schemes were supposed to invest no more than 30 per cent of their funds in real estate. The rule had raised fears that the schemes, which own well over 60 per cent of property in key towns, would be compelled to offload the assets, depressing the sector further.

However, a senior compliance official at the Retirements Benefits Authority told The EastAfrican that rather than offload assets and cause a glut in the market, RBA was now taking the line that new contributions should not be invested in property in order to get the right portfolio mix. This means the pace of new property developments will ebb substantially in the long run; in the medium run, the prevailing demand and supply equation will be maintained, keeping property rates at present levels if not higher.

"RBA favours a situation where new contributions are invested in non-property assets," the official said. Apart from cushioning the real-estate sector from drastic sales, the approach means that new property developments will be greatly hampered by lack of participation from pension schemes.

Kenya's property sector has experienced lean times over the past five years as business failure and dwindling incomes force tenants to seek cheaper alternatives. In the upper- and middle-market segments, the rate of occupancy is as low as 40 per cent, compared with about 70 per cent in 1997.

Rents have also tumbled, with residential properties that attracted Ksh50,000 ($630) a month a few years ago barely managing to attract half that amount. The problem was exacerbated last year when the government withdrew leases for about 25,000 civil servants, leaving residential properties empty.

Commercial buildings that used to house government offices were also affected as government departments were merged and housed in public properties located on the outskirts of major towns.

A notable beneficiary of RBA's policy is the National Social Security Fund (NSSF), which holds about 80 per cent of its Ksh55 billion ($705 million) assets in non-liquid form, particularly real estate, whose valuation has drawn controversy over the past decade.

NSSF's former managing trustee, Josphat Konzolo, argued last month that immediate compliance with the portfolio rules would have depressed an already swamped property market, causing sharp declines in bank collateral value and leading to defaults.

Although some schemes had proposed to reach the portfolio mix faster through raising of contributions from members, the official said this would not yield the desired ends. "The important thing is that new contributions should not be invested in property assets," he said.

However, the authority favours an increase in contributions to ensure schemes are fully funded and contributor's benefits are correspondingly enhanced. "We are interested in strong schemes and adequate benefits to members," he said. RBA also favours removal of contribution caps so that members can provide a replacement rate to enable pensioners to enjoy the same standards of living as when they were working.

It is unlikely that workers would be willing to pay higher contributions to NSSF in the absence of reforms that significantly raise its investment return above the inflation rate; currently, it is languishing in the negative zone. 

The official said that many of the 1,300 registered schemes had reached a 70 per cent compliance level. The schemes had also filed plans of action with the authority on areas where they had difficulty in compliance. 

The Authority's position on portfolio mix, however, provides an avenue through which schemes can continue investing in property in the name of "completing initiated projects." Last week, the NSSF advertised for services for an ongoing housing project in Nairobi's Central Business District.

"It is better for the schemes to complete such buildings, adding value to them for selling or renting," the RBA official said. 

NSSF public relations manager Mr J. Mwaloma declined to comment on the Fund's action plan on the investments, member contributions and administration cost rationalisation. The rules require that administration costs not exceed 10 per cent of contributions.

The RBA official also said schemes with foreign assets would be given a phasing off period on a case-by-case basis, adding that some schemes had asked for as long as five years to adjust. "We are not worried about the period," the official said. 

Schemes are required to limit their offshore investments to 15 per cent of a fund's worth, a restriction that largely affects schemes sponsored by multinational companies.