Sio Lazima Ujenge Flats! Why Kenyans Can opt for Bonds, Treasury bills Over Real Estate
Investing in real estate has long been popular in Kenya. However, with rising costs of land, construction, and unpredictable market conditions, many Kenyans are seeking alternative investments that offer security and consistent returns.
One such alternative is bonds—specifically government and corporate bonds—which provide an attractive option for those looking to grow their wealth without the risks and expenses associated with property ownership.
Bonds offer lower entry barriers compared to real estate. While acquiring property often requires millions of shillings, you can start investing in bonds with as little as Ksh 50,000.
Moreover, bonds provide guaranteed returns through fixed interest rates, ensuring that investors receive regular payments, typically semi-annually, without the volatility seen in property values. Additionally, bonds are less time-intensive, as they don’t require maintenance or management like real estate investments do.
Given the stability of government-backed bonds and the fact that returns are more predictable than in real estate, bonds can serve as a safer, more flexible investment vehicle for Kenyans who wish to diversify their portfolios without the capital intensity of real estate.
What is a Bond?
A bond is essentially a loan that you, the investor, give to a bond issuer, such as a government or corporation. In return, the bond issuer promises to pay you interest over the life of the bond and return your initial investment, known as the principal, at the bond’s maturity date. Bonds are often referred to as fixed-income securities because they provide a steady stream of income through regular interest payments.
Common Bond Issuers
Some typical bond issuers include:
- Governments and government agencies (e.g., the National Treasury)
- Banks
- Non-bank financial institutions
- Corporations
Treasury Bonds vs. Treasury Bills
Government securities, particularly treasury bonds and bills, are among the safest investment options because they are backed by the government. Investors essentially lend money to the government in exchange for a guarantee of regular interest payments and the return of their principal at a future date.
Treasury Bonds
Treasury bonds are medium- to long-term investments that can mature anywhere between 1 and 30 years. They offer fixed interest payments every six months, which makes them particularly attractive for investors seeking consistent returns. In Kenya, you can invest in a treasury bond for as little as Ksh 50,000.
Treasury Bills
Unlike bonds, treasury bills are short-term investments that mature within 91, 182, or 364 days. They are sold at a discount, meaning you pay less than the face value and receive the full amount upon maturity. The minimum investment in a treasury bill is Ksh 100,000.
Why Choose Bonds?
Lower Risk
Treasury bonds are backed by the government, making them virtually risk-free. This contrasts with real estate, where market downturns, property maintenance, and tenant issues can significantly impact your returns.
Regular Income
Most bonds provide fixed interest payments twice a year, ensuring a steady income stream over the life of the bond. This is different from real estate, where rental income can fluctuate based on occupancy rates or market conditions.
Flexibility
Bonds come with various maturity periods, allowing you to choose an investment horizon that suits your needs. You can opt for shorter terms like 1-year treasury bonds or commit to longer durations, even up to 30 years. This allows greater flexibility compared to real estate, which often requires long-term commitments.
Tax Benefits
In Kenya, infrastructure bonds, a special type of treasury bond, offer tax-exempt returns, making them especially attractive to investors looking to maximize their profits without worrying about taxes.
With low minimum investment amounts, guaranteed returns, and ease of management, they are ideal for those who wish to avoid the challenges of property investment while still growing their wealth over time.
