Many Wealthy Kenyans Are Investing in Real Estate Debt; What is It & How Does It Work?

A report by Knight Frank revealed a growing trend among wealthy Kenyans: turning to real estate debt as a key investment avenue—particularly using inherited wealth.

The Wealth Report 2025, released in April 2025, highlighted that real estate debt ranked as the second most preferred investment sector among high-net-worth individuals, with 17% of those surveyed favouring it through inheritance. Topping the list, however, was the private residential rental market, commanding a dominant 38.89% share.

What is Real Estate Debt

Real estate debt involves an investor lending money for real estate projects and earning interest from it. In this case, instead of buying or building a house, you give money to an entity that is, like a property developer, and they pay you back with interest.

How Investments Are Made

Private Lending

For investors with a capital, they can provide a loan to a real estate developer or property owner for a specific project. They can negotiate the interest to be paid.

However, the cons with private lending include extremely high risk, given that there is no diversification, as one is lending to a single borrower or project. Also requires significant capital and legal expertise to draft loan agreements.

Investing in Corporate Bonds Issued by Financial Institutions

Banks and other financial institutions (including mortgage lenders) sometimes issue corporate bonds to raise capital. A significant portion of this capital often goes towards their lending operations, including real estate.

Investors receive fixed or floating interest payments (coupons) from the issuer, and their principal is returned at maturity.

Crowdfunding

This is emerging, and investors usually go to online platforms that connect individual investors directly with real estate developers or property owners seeking loans. Investors can contribute smaller amounts to fund a portion of a larger loan. The platform facilitates the loan origination, servicing, and repayment.

Investors receive interest payments directly from the borrower, proportional to your investment.

Why the Rich Are Choosing It

As explained in the Knight Frank report, the rich are choosing this investment opportunity for two reasons, namely predictable returns and diversification benefits.

In terms of returns, investors are able to get their returns in structured payments.

"Real estate debt instruments generate stable returns through structured interest payments, offering a reliable income stream," read the report in part.

"Diversification benefits: By investing in real estate debt, investors can gain exposure to the real estate market while mitigating the

risks associated with direct property ownership."

Alternative to Real Estate Debt Investments

REITs

Real Estate Investment Trusts (REITS) offer the public a way to invest in large-scale real estate. They acquire properties or mortgages and trade on securities exchanges, much like stocks. This structure gives investors a highly liquid stake in real estate and mortgage assets.

In Kenya, two primary types of REITs exist:

Income Real Estate Investment Trusts (I-REITs): These REITs generate revenue primarily from property rentals. They own and manage income-producing real estate, benefiting investors through distributions underpinned by commercial leases. I-REITs provide a liquid investment in real estate, offering a stable income stream.

Development Real Estate Investment Trusts (D-REITs): These schemes direct funds towards property development and construction for sale or rent. D-REIT returns are derived from capital gains once development is complete and the company exits by selling to the open market or to an I-REIT.