Land plays a significant role in the socio-economic and political development of the country. Therefore, its ownership, allocation, distribution and utilization is of great concern to most Kenyans thus making it one of the contentious issues that require a lasting solution in effective legal and institutional framework. Land is either public, private or community land, with ownership being either on a freehold tenure which gives the holder absolute ownership for life, or leasehold tenure in which the interest in land for a specific period is subject to payment of a fee, rate or rent to the grantor.
The National Land Policy in Kenya recommends leases of not more than 99 years with a possibility of extension when the lessee applies for an extension of term before the existing term has expired. During the period of ownership, an individual or entity is required to pay land rates and rent which is currently based on the 1980 valuation roll. In terms of Stamp Duty payment before transfer of land, current stamp duty rates are 4% of the valuation amount for land in urban areas and 2% for land in rural areas.
Land has also consistently been ranked as one of the best investment assets in the real estate sector attributable to its performance resilience. According to the Cytonn Annual Markets Review 2020, land asking prices recorded an average annual capital appreciation of 2.3% in 2019 bringing the 9-year CAGR to 10.7%. The satellite towns have continued to gain popularity outperforming the Nairobi suburbs recording an average annual capital appreciation of 5.4% compared to the market average of 2.3%, attributable to affordability of land in the satellite towns.
However, for site and service the prices are lower due to the fewer list of sub markets unlike unserviced land which includes market areas such as Ruaka whose prices are relatively high yet there is absence of site and service schemes. The commercial suburbs in the Nairobi area recorded reduced transaction volumes and resultant subdued performance attributable to the existing oversupply of commercial office and retail space estimated at approximately 6.3 million and 3.1 million SQFT, respectively.
The table below shows the summary of the Nairobi Metropolitan Area land performance.
Factors driving land transactions
Some of the recent factors driving land transactions include housing, mortgage, infrastructure and demographics.
The continued focus on the provision of affordable housing by both the government and private sector developers has continued to result in sustained demand for development land especially in the satellite towns where land is available in bulk and at affordable prices while ccess to mortgage facilities especially through the KMRC which is committed to offering affordable loans through the Primary Mortgage Lenders (PMLs) at an interest rate of 5% enabling them to write off loans at an interest rate of 7% compared to the average interest rate of 12%, has been driving the uptake of land mainly due to the availability of affordable loans to finance the development and purchase of property.
Development of infrastructure, on the other hand, has continued to open up areas for development and thus increased demand for development land.
As for positive demographics, Kenya has a high population and urbanization growth rate of 2.3% and 4% against a global average of 1.1% and 1.9% respectively according to the World Bank, driving the demand for development land mainly to cater for the housing need.
Despite the above, land transactions have faced challenges too including the tough economic environment brought about by the COVID-19 pandemic, which has resulted to reduced disposable income which has limited the capacity of individuals to purchase land. Additionally, the reduced real estate development activities have also resulted into reduced uptake of land as investors adopt a wait and see attitude amid market uncertainty.
The high cost of land especially within the Nairobi suburbs has also crippled the purchasing of land thus resulting in stagnated performance. According to Cytonn research, the average asking price of land within the Nairobi suburbs is at approximately Sh216.2m per acre.
Funding for both developers and end users have also remained low due to the perceived liquidity risk and despite the operationalization of KMRC, the mortgage market continues to grow sluggishly attributed to low-income levels that cannot service loans, high interest rates and deposit requirements which lock out many borrowers resulting in reduced demand for property including land.
Land Regimes in Kenya
The 2010 Constitution of Kenya enhanced previous land reform efforts by establishing a legal framework for the administration, use, and management of land in Kenya. Article 61 of the Constitution classifies land as either public, private or community land.
Public land is land held and administered by the National Lands Commission, which has been reserved for public use or environmental protection such as forests and game reserves, rivers and lakes, and roads provided by the Act of Parliament.
Community land is one held by communities on basis of ethnicity, culture or similar community interest and is held in trust by the county governments for the community if unregistered, and, private land is land held by any person and companies under any freehold tenure or under leasehold tenure or land that is declared private by an Act of Parliament.
There have been a number of land regulations that have been established without constitutional backing such as the Land Titles Act, the Registration of Titles Act, the Land Acquisition Act, the Government Land Act and therefore they had to be repealed. There are others that remain in force such as the Land Control Act, the Landlord and Tenant Act, and the Distress for Rent Act. The Parliament in 2012 enacted new land laws with the aim of revising, consolidating and rationalizing land laws, and also providing for the sustainable administration and management of land and land-based resources.
The new land regulations include The Land Act 2012, enacted in order to revise, consolidate and rationalize land laws, to provide for the sustainable administration and management of land and land-based resources, the Land Registration Act 2012, enacted to revise, consolidate and rationalize the registration of titles, to give effect to the principles and objects of devolved government in land registration, the National Land Commission Act 2012, enacted to make further provision as to the functions and powers of the National Land Commission, qualifications and procedures for appointments to the Commission; to give effect to the objects and principles of devolved government in land management and administration, and Community Land Act of 2016, enacted to provide for the recognition, protection and registration of community land rights; management and administration of community land; to provide for the role of county governments in relation to unregistered community land.
The above Acts of Parliament came with numerous new provisions. The National Land Commission, for instance, was granted more power in management and administration of public, private and community land having been required to be the link between the county governments and other institutions dealing with land and land related resources.
All land in Kenya had and still has to be registered and any land available for allocation has to be Gazetted and notices published in at least two local dailies, prior to commencement of the allocation process.
Title deeds were examined and registered afresh so that they are issued in the new prescribed form.
Foreigners who held freehold titles or leasehold titles that were for a term exceeding 99 years, had their titles reduced to 99-year leasehold titles while Kenyan Citizens who held a leasehold title were granted the right to re-acquire the land upon expiry of the term provided the land is not required for public purposes.
Provision of a certificate of lease where a person is registered as the owner of a long term lease over apartments, flats, maisonettes, townhouses or offices, and for transfer of a portion of land, a new title deed for the subdivision will have to be obtained prior to completing the transfer of a portion of land.
Corporate bodies or associations effecting dispositions of land, such as agreements for sale, transfers and charges, are required to execute documents in the presence of an advocate of the High Court of Kenya, a magistrate, judge or notary.
Title deeds are to be issued over long-term leases exceeding 21 years as opposed to the old rules that required leases exceeding 25 years,
Regulations on charges relating to private land including variation of interest rates requiring a notice with simple explanation to the borrower, forced sale valuation must be undertaken before exercising the statutory power of sale, among others, and, any land acquired through a process tainted with corruption will be forfeited to the Government.
There were also introduced new offences and penalties relating to land transactions including that offences related to the giving of false information and other fraudulent practices will be punishable by a fine of up Sh5m and imprisonment of up to 5 years or both, under the Land Registration Act. Unlawful occupation of public land will be deemed an offence which will attract fines of up to Sh500, 000 and if a continuous offence, a sum not exceeding Sh10, 000 for every day the offence is continued
Wrongful obstruction of a public right of way will be deemed an offence and will attract a fine of up to Sh10m and if a continuous offence, a sum of up to Kshs 100,000 for every day the offence is continued, and, any rights over land that were obtained by virtue or on account of an offence may be cancelled or revoked.
Despite these laws having been comprehensive enough to address loopholes in legal framework, land transactions have over the years continued to face challenges which further led to other recent reforms that have come into play to facilitate easier land and property transactions, bringing order to records and reducing court cases relating to the transactions.
The Physical and Land Use Planning Act 2019: The law repealed the Physical Planning Act of 1996 and now governs matters relating to the planning, use, regulation and development of land. It requires integration of national, county, inter-county and local physical and land use plans, development control by county governments in their respective counties, and, developers seeking development permission prior to undertaking any development.
The Act effected various changes including increased public participation in land matters; classification of developments that require permission for instance subdivision, amalgamation, change of user, extension of user of lease and approval of building plans; clear definition of what constitutes commercial and industrial use to guide applicants in selecting the correct land use and; development permission in respect of commercial and industrial use being a pre-requisite for other licensing authorities granting a license for a commercial or industrial use, or occupation of land.
Stamp Duty (Valuation of Immovable Property) Regulations, 2020: The Valuation Regulations outline the procedure for determining the market value of immovable property, mainly land, for purposes of assessment of applicable stamp duty to be borne by the buyer with the aim of simplifying transactions. Provisions under the regulations include;
Permits for valuations may either be done by a Government Valuer or a Private Valuer appointed by the Chief Government Valuer thus speeding up the land and building transfer processes;
The appointed registered Private Property Valuer will be expected to submit a valuation report to the Chief Government Valuer immediately a payment has been made by a transferee while the Government Valuer has a limit of 21 days to submit the valuation report from the date a transferee chooses to have valuations done;
The person liable to pay the Stamp Duty and who is aggravated by the valuation of property may lodge objection in writing to the Chief Government Valuer within 21 days of receipt of the notice of valuation on limited grounds including; i) value assigned for the immovable property, ii) the apportionment of the area, dimensions or description of the immovable property, iii) in the case where the immovable property that should have been included in the valuation has been valued separately, iv) that the immovable property that should have been valued separately has been included in the valuation, and, v) the person named in the report is not the true transferee of the immovable property, and;
In case of professional malpractice in the course of rendering services under the Stamp Duty Act, the person alleging the malpractice may report the matter to the Valuers Registration Board and if proven relevant sanctions in the valuers act will apply.
The Stamp Duty (Amendment) Regulations, 2020: A legal notice was published under these regulations to amend matters of electronic transmission of documents. Under the regulations, electronic stamping of documents by franking machines or by electronic means is allowed; payment of stamp duty under the direction of a collector to be done electronically; electronic submission of documents through the National Land Information System is allowed as well as modification of forms for electronic transactions and serving of notices authorized to be done electronically.
Land Registration (Electronic Transactions) Regulations, 2020: These regulations seek to effect the development and implementation of a National Land Information System and the maintenance of a land register and land documents in a secure, accessible and reliable format. As per the proposed Regulations; the mandate to keep and maintain a data base of all public land in electronic form was given to the National Lands Commission (NLC); public institutions vested with the control, care and management of public land are required by the NLC to submit an inventory of all land; various fees prescribed under the Regulations may be paid through authorized electronic means as may be advised by the Cabinet Secretary from time to time, and, the decision to grant or not grant an extension of lease by the County Government be communicated to the Cabinet Secretary of the Ministry of Lands for implementation and not the NLC as it was earlier
The Sectional Properties Act 2020: This Act provides for the division of buildings into units to be owned by individual proprietors and common property to be owned by proprietors of the units as tenants in common and to provide for the use and management of the units and common property. The provisions under the Act are;
Giving property developers and apartment owners greater transaction ability in financing and disposal of properties in the market as it will allow apartment buyers to have title deeds as proof of ownership;
Independent and complete ownership of properties will give banks greater incentive to lend to apartment owners since charges can be placed directly on individual titles;
The owners of a unit shall only be liable in respect of an interest endorsed on the sectional plan in proportion to the unit factor for his unit;
Developers can subdivide buildings into two or more units by the registration of a sectional plan prepared, by a surveyor, from a building plan that has been approved by a county government;
Common property comprised in a registered sectional plan, shall be held by the owners, and;
Landlords or owners of existing units are allowed to convert their properties into units under the Act if they want to sell them as units. This implies developers will no longer be allowed to sell units without sectional plans to enable individual ownership.