Kenya’s Real Estate Regulation Bill 2023 has been tabled at the Senate for discussion. The new bill aims at streamlining operations in the property sector in order to foster its integrity. Below is a summary of the key highlights from the bill:

 

• Establishment Of A Real Estate Board To Serve As Advisors And Regulators

The bill proposes the establishment of a board to serve as an advisor to the national and county governments on property sector development matters. Additionally, the board will be mandated to register and license all real estate projects and practitioners such as property developers and agents, and as per the prescribed fee structure. Moreover, they will ensure property practitioners are compliant with the set rules, while keeping a public database of the associated parties and projects. 

Our View: Having a regulatory board for all property practitioners is a welcome, with the emphasis of having a professional body overseeing activities. However, bodies such as the Estate Agents Registration Board (EARB) already exist for the purpose of regulating estate agents thereby pegging the question of the necessity for another regulator. In any case, new terms can be merged under the already existing EARB body to avoid duplication.

Importantly, the proposals should be more inclined to target the property development sector given that there is no professional body regulating developers. The establishment of the Real Estate Developers Regulatory Board (REDRB) was proposed in 2020 to enhance professionalism in the sector however, this has yet to materialize. It is therefore crucial to establish a clear and comprehensive regulatory framework in order to help minimize development vices through mandatory registration and licensing, just like in other countries such as India, and Malaysia among others.

 

• Registration And Regulation Of Real Estate Projects

The regulation bill dictates that licensing and registration of projects will be primarily done through the board. Interestingly, it also highlights that projects constructed in phases will be considered as single projects and as such registered separately.

To further ensure the integrity and viability of a project, or the security of investments by clients, the developer shall have their accounts audited every six months after the end of every financial year. Moreover, 70% of the amounts realized from the project by purchasers shall be deposited in a separate account, and only withdrawn to cover the cost of the project in proportion to the percentage of completion of the project as approved by the associated architect and engineer.

Our View: Kenya’s property market has in the past been marred with a myriad of vices. According to the Baseline Survey In Land Related Crimes report by the Kenya National Crime Research Center (NRC), 31.1% of land related crimes have been pegged on fraudulent cases, and 33.3% delays on title deed issuance, among other crimes. Notably, brokers(41.4%), government administrative officers(23.3%), corrupt land buying companies(21.9%), and land developers(12.9%), have been earmarked as some of the perpetrators of these crimes. This has consequently led to the swindling of potential property buyers, and disharmony among other effects. 

As such, the proposal to have a board in place is noteworthy, however, we recommend having a professional development regulatory body to help oversee and curb these challenges. Additionally, we are also of the view that having separate registration and transaction costs for different phases of a singular project is tedious and will constitute more project costs, while construction costs are also on the rise.

 

• Developers Duties To Ensure Compliance

For a property developer, the bill mandates one to ensure all project details are entered in the online public portal. Importantly, a developer is to ensure the project is completed on time and in accordance with the approved plans. As such, there should not be any alterations to the design at any given point in time. Moreover in the case of a sale, a developer shall not accept a deposit sum which is more than 10% of the total property price. Finally, the developer is prohibited from transferring their rights or liabilities to a third party, unless granted approval by the board.

Our View: The National Construction Authority (NCA) has stipulated construction guidelines, however, non-compliance vices are still relatively high in the property development sector. According to the  2022 Status of The Built Environment Report by the Architectural Association of Kenya (AAK), 69.8% of the inspected projects by NCA were found to be non-compliant with building codes and regulations. With a professional property development regulatory body in place to help regulate activities in the sector, we believe the non-compliance impacts could be mitigated, and consequently minimize the vulnerability and uncertainties in the sector.

 

• Offenses And Penalties In Place To Ensure All Participants Abide By The Law

A person who undertakes a real estate project not registered shall be convicted, and be liable to imprisonment for a term not exceeding three (3) years or to a fine of not less than Kshs 5.0 Mn, or to both. Additionally, the provision of false information to the Board warrants conviction, and as such one will be liable to pay a penalty of 5% of the estimated project cost as determined by the Board. Finally, a developer convicted of an offense under the Act for which no other penalty is provided shall be liable to a fine not exceeding Kshs 1.0 Mn.

Our View: Penalties to offenses already exist under NCA’s code of conduct guidelines, yet the aforementioned land and related vices still plague Kenya’s property sector mainly due to corruption. As such, for the penalties stipulated under the proposal to be properly implemented, a stronger regulatory and policy framework is required to help curb the challenges.

 

In conclusion, the proposal to regulate Kenya’s property market is noteworthy given the various vices hampering the sector’s optimum performance. However, we believe a synergy needs to exist between the government and professional stakeholders to enhance seamless operation of activities. As such, proposals on agents regulations can be merged under the EARB body to avoid duplication. Additionally, the formation of a development act and the REDRB initiative should be revived in order to aid regulate the land and property development sector. This will be done through mandatory registration and licensing of projects and developers, given that the majority of the vices originate from the land and property development subsectors.

 

We love your feedback! Let us know what you think about Kenya’s new property regulation bill by emailing  [email protected].

Subscribe to ei Pro to access affordable real estate data such as; sales rates, yields, supply drivers, and information on key Real Estate market participants who are active in the market.