Regulatory and legislative reforms are providing more equitable land access

Prior to the 2009 National Land Policy (NLP), Kenya’s real estate sector had been governed by complex and often incompatible administrative mandates. A consequence of the 2004 UN-HABITAT reform initiative, the 2009 NLP is the government’s first attempt to streamline national laws. It is also the first policy to provide a single and clearly defined national land policy since independence and has been the basis for legislative frameworks as codified in the 2010 constitution.

Colonial Reformation

Kenya’s need for reform has been pressing. Previous legislative and administrative frameworks were defined by colonial mechanisms that assigned differing rights to colonial and indigenous populations. These legacies are profound and define Kenya’s contemporary real estate landscape. This is notable in improved infrastructure and services in areas inhabited by settlers and nationally in the historic emergence of a class society based largely on land ownership. Today, the majority of Kenyans own uneconomical plots of less than 1 ha, 75% live on 20% of the most productive land, and 29% are considered landless, meaning they have no land title or tenure. This concentration of landless populations has developed in line with Kenya’s highly centralised economic and urban centres. In 2006, the most recent figures available at the time of press, Nairobi had the greatest concentration at 96.2%. The north-eastern and coastal territories had 73.9% and 49.4%, respectively.

Development is also largely restricted to just 30% of Kenya’s land, of which 10% is government-owned and 20% under freehold. Some 70% of land is considered communally owned and held in trust by the government, based on colonial Crown Lands Ordinance that converted all native lands to trust lands. Under Article 63.4 of the constitution, sale of communal land is permitted only through the Community Land Law, which has not yet been passed to Parliament for ratification.

Transparency is also a challenge. Land title deeds and records have been maintained in hard copy only. Poor record maintenance has compromised security of tenure, creating prohibitively high risks for some investments and damaging market confidence. This opaque nature of real estate information placed Kenya in the bottom third of the 2012 Jones Lang LaSalle Global Real Estate Transparency Index, ranking the country 67th out of 97 countries. George Wachiuru, CEO of real estate firm Optiven Enterprises, told OBG, “Acquisition of land title deeds is still mostly inefficient. There is a move to automate procedures and stomp out much of the corruption typically plaguing these processes.” These challenges have been exacerbated by increased speculation accompanying the large-scale infrastructure and housing projects being rolled out under Vision 2030. “The major issue facing the property market in Nairobi is not access to land, but access to changes in land use. Ongoing speculation on potential rezoning is the major factor fuelling property prices,” Tom Odongo, Nairobi City Council’s lands, housing and physical planning county executive committee member, told OBG.

Swift Action

However, since 2009, reform efforts have moved swiftly. Laws have been simplified and harmonised, introducing accountability and transparency to land transactions. The 2010 constitution provides that land in Kenya shall be held, used and managed in a manner that is equitable, efficient, productive and sustainable. These precepts have been codified in the Land Act, the National Land Commission Act and the Land Registration Act, which is now the sole legal regime under which all interests in land are to be registered. Four different statutory registration regimes – the Government Lands Act, Registration of Titles Act, Land Titles Act and Registered Land Act – were repealed, alongside the Indian Transfer of Property Act, the Wayleaves Act and the Land Acquisition Act.

Consequent to these reforms, revenues from land grew from KSh850m ($100.9m) to KSh9.5bn ($108.3m) between the 2007/08 financial year and 2011/12 financial year. In May 2013 the Ministry of Land, Housing and Urban Development (MOL), was formed, merging the ministries of Land, Housing, Urban Development and Nairobi Metropolitan Development. Central to the overhaul, however, was the establishment of the independent National Land Commission (NLC). Providing a central body to coordinate the actions of central and county governments, the NLC is tasked with developing and overseeing national land policy, including land administration, land use planning, environmental degradation and informal settlements. The NLC will also oversee some 4.06bn national registered titles. However, implementation of ongoing reform has encountered both administrative and legislative hurdles.

Tricky Execution 

Digitalisation of title deeds and land records is ongoing through the MOL. Once complete, digital records will expedite land ownership enquiries, provide fuller transparency and ensure that authentic title deeds are accurately recorded and the owner’s rights upheld. However, as the mandated executioner of this function, the NLC has yet to receive full access to the MOL records, nor has any audit of the files yet been conducted to verify the accuracy of current records. Furthermore, contested claims are at present subject to lengthy arbitration proceedings through the NLC, which reported that 70% of cases originate from colonial rulings. The NLC currently has a target of issuing 1m deeds within 2014. In April 2014 it had issued 139,000 deeds, reporting 227,000 as pending.

Ongoing restructuring at the MOL is also causing congestion, with demand outstripping current capacities to audit permit applications, developments as well as enforcing construction law. Currently the government issues 650-800 permits every quarter, however, it is not known how many permits are applied for. Efforts to streamline the process in a project backed by the World Bank and the International Finance Corporation to introduce e-permits are ongoing.

Zoning Local

As part of the development of a National Land Use Planning policy, which began in 2011, zoning regulations are also under review. Anticipated changes will release large tracts of land for re-development across the country, especially in Nairobi. Beyond Nairobi, each of the 46 local governments have also published sectoral, spatial and urban land use plans as part of their county-integrated development plans. This has fuelled localised speculation with the NLC planning to issue 303,000 title deeds in the counties by June 2014. However, with devolution, real estate is subject to both county and national regulations and levies. Construction permit fees have increased from 0.06% to 1.25% of development costs and property taxes in Nairobi have been doubled from 17% to 34%. “The tax burden on property developers from local government is disproportionately high since new taxes were introduced in November 2013. Revenue from the property sector contributes one-third of Nairobi’s budget, a level that other county governments have taken note of,” Robyn Emerson, the CEO of the Kenya Property Developers Association (KPDA), explained. “High tax burdens will only deter investment in the market at a time when counties are in fact pursuing and promoting required real estate development.”

Revision of the government permit issuing mechanisms is also a priority. From November 2013 permit costs covering the entire spectrum of development must be paid in full on the first filing. This does not permit changes to project proposals and developers have no assurances that county revenues are being spent on necessary improvements to sector services. Moreover, cost increases have pushed some developers under the radar; up to 70% of construction in low-income districts of Nairobi is estimated to proceed without the required permits.

Private Intrests

Cognisant of the ramifications of legal reform in the market, public and private sector coordination mechanisms have been established. Quarterly ministerial meetings are held between the MOL and the Kenya Private Sector Alliance Land Sector Housing Board (KEPSA-LSHB), which is co-chaired by the Kenya Property Developers Association (KPDA). This is now moving toward the formation of a joint MOL-LSHB technical committee that will pursue implementation of agreed recommendations.

The KPDA’s membership has grown 25% in the past two years and it has been a vocal advocate of developers’ three-fold concerns in the current reform process, notably levies, administration and infrastructure.

Government attention is now focused on further reform to outstanding legislation, notably the Land Control Act, the Landlord and Tenant Act, Sectional Properties Act and the Distress for Rent Act. A revised Eviction and Resettlement Guidelines Bill was passed in 2013 providing a more equitable and flexible framework.

Kenya’s legislative reforms are the first step in providing equitable and sustainable land use. Economic decentralisation through devolution has provided the industry with an unprecedented opportunity for growth, but levies and legislation that developers are now subject to are not yet in synergy with national priorities. However, the opaque nature of the country’s real estate market is slowly growing more transparent as legislative and administrative reforms are implemented. Momentum is building and ground is being broken.

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The Report: Kenya 2014

Construction & Real Estate chapter from The Report: Kenya 2014

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