How to improve Kenya’s competitiveness

November 5, 2015

With the slowdown in the residential sector, a question many developers have raised is whether a new stimulus package is necessary to give the Kenyan market the boost it needs. It could result in boosting market sentiment and bolster the sales of projects that will be completed within the next six months.Other fundamental issues that need to be reviewed to make Kenya’s property market more competitive and strengthen the confidence of global investors include the reform of property taxation and ownership structure as well as property tenure. Whereas property taxation has been reviewed and changes will soon be implemented, property ownership and tenure have not yet been touched. It is common for African countries not to allow the foreign ownership of land. Foreign investors are offered long-term leases as an alternative. The lease duration period for Uganda,Tanzania is up to 99 years.Other countries offers less years. For countries to benefit, legislations in Kenya need to be amended so that long-term leases for commercial and industrial purposes could be up to acceptable international levels. The idea of a leasehold term extension has been floated time and time again, but has not been seriously considered by Kenyan government. Today, especially in prime locations such as downtown Nairobi and Mombasa or major international resorts such as Kilifi and Kwale, the value of residential property is far higher than that of commercial property.

A short term lease is too short to justify the cost of investment in Kenya for foreigners. The structure of two options to renew a lease is not practical or fully accepted by many investors. I believe that extending the lease term would have a far-reaching impact on the property industry. The most competitive term would be 99 years, where the value of the lease is closer to freehold. The most immediate impact would be on the residential and resort-home sector, where buyers of leasehold properties would be able to register one secured long-term lease, instead of a series of renewable 20—50 year leases, which is the current market practice. Kenya is losing its competitiveness to regional rivals that offer longer-term leases. Many top-end residential projects in Nairobi today that sit on leasehold land would also be able to attract both local and foreign demand. A leasehold term extension would also have an extensive impact on commercial and mixed-use mega-projects like the one taking place in Upper Hills in Nairobi county as well as Mombasa, Kisumu, Kilifi, Kiambu and Thika counties. There are large government and privately owned land plots that have significant development potential. A longer lease will make projects financially feasible and attractive to big developers. The extension would serve well not only in terms of drawing in foreign investment from large-scale developers who could not otherwise purchase freehold land, but would also stimulate the launch of economically beneficial projects that would have positive spin-off effects on the economy that is currently struggling on the backdrop of volatile exchange rates and rising costs of living. Potential private-sector investors have called for a longer lease term to make the project attractive. Such policies would give the property market a much-needed boost, as well as play a key role in better structuring of the sector to reap long-term benefits.

Contador Harrison