Jan 24, 2021

1. Introduction
   1. Overview of the Land Sector in Kenya

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 requires 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 of the land 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 4.0% of the valuation amount for land in urban areas and 2.0% for land in rural areas.

2. Performance of the Land Sector in Kenya

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 in 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 mn and 3.1 mn SQFT, respectively.

The table below shows the summary of the Nairobi Metropolitan Area land performance;

(All values in Kshs Unless Stated Otherwise)

Source: Cytonn Research

3. Factors driving Land Transactions

Some of the recent factors driving land transactions include; 

• Focus on Affordable Housing: 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,
• Mortgage Availability: Access 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 5.0% enabling them to write off loans at an interest rate of 7.0% compared to the average interest rate of 12.0%, has been driving the uptake of land mainly due to the availability of affordable loans to finance the development and purchase of property,
• Infrastructure Development: Development of infrastructure has continued to open up areas for development and thus increased demand for development land, and,
• Positive Demographics: Kenya has a high population and urbanization growth rate of 2.3% and 4.0% 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.

4. Challenges facing Land Transactions

Despite the above, the factors negatively affecting land transactions include;

• Tough Economic Environment: The tough economic environment brought about by the COVID-19 pandemic 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 to reduced uptake of land as investors adopt a wait and see attitude amid market uncertainty,
• High cost of land: The high cost of land especially within the Nairobi suburbs has crippled the purchasing of land thus resulting in stagnated performance. According to Cytonn research, the average asking price of land within the Nairobi suburbs averaged at approximately Kshs 216.2 mn per acre, and,
• Inaccessibility of financing: Funding for both developers and end users have remained low due to the perceived liquidity risk and despite the operationalization of KMRC, the mortgage market continues to grow sluggishly attributable to low-income levels that cannot service the loans, the high interest rates and deposit requirements which lock out many borrower and resulting to reduced demand for property including land.

2. 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 land, private land or community land, i.e;

• Public land: this 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, roads provided by the Act of Parliament, etc,
• Community land: this is land 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: this 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 has 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 of Kenya 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 on matters concerning land.

The new land regulations include:

1. The Land Act 2012: This law was enacted in order to revise, consolidate and rationalize land laws, to provide for the sustainable administration and management of land and land-based resources,
2. The Land Registration Act 2012: This was enacted to revise, consolidate and rationalize the registration of titles, to give effect to the principles and objects of devolved government in land registration,
3. The National Land Commission Act 2012: This was 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,
4. Community Land Act of 2016: This was 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 main provisions that came under the above Acts of Parliament included;

1. The National Land Commission 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,
2. 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,
3. Title deeds were examined and registered afresh in order to be issued in the new prescribed form,
4. 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,
5. 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,
6. Spouses being deemed owners of land though not through title,
7. For the 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,
8. Corporate bodies or associations effecting dispositions of land, such as agreements for sale, transfers and charges, were required to execute documents in the presence of an advocate of the High Court of Kenya, a magistrate, judge or notary,
9. Title deeds to be issued over long term leases exceeding 21 years as opposed to the old rules that required leases exceeding 25 years,
10. 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,
11. Any land acquired through a process tainted with corruption be forfeited to the Government,
12. New offences and penalties relating to land transactions, i.e.;
    • Offences related to the giving of false information and other fraudulent practices being punishable by a fine of up Kshs 5.0 mn and imprisonment of up to 5 years or both, under the Land Registration Act,
    • Unlawful occupation of public land being deemed an offence which will attract fines of up to Kshs 500,000 and if a continuous offence, a sum not exceeding Kshs 10,000 for every day the offence is continued,
    • Wrongful obstruction of a public right of way being deemed an offence and will attract a fine of up to Kshs 10.0 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.
13. The Commission and the Cabinet Secretary were granted powers to make regulations to better carry into effect the provisions of the Land Act and Land Registration Act, in matters with respect to squatters, regulations that "facilitate negotiations between private owners and squatters" and also those that deal with the " transfer of unutilized land and land belonging to absentee land owners to squatters".

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 which have come into play to facilitate easier land and property transactions, bringing order to records and reducing court cases relating to the transactions;

5. The Physical and Land Use Panning 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 significant changes that the Act brought about are;
   • Increased public participation in land matters e.g. the suitability of the national and county plans,
   • Classification of developments that require development permission, i.e, developments such as subdivision, amalgamation, change of user, extension of user, extension of lease and approval of building plans will still require development permission to be issued by the relevant county government,
   • Additional developments requiring approvals with processing of easements (making use of land for a limited purpose) and wayleaves (right of way) requiring express development permission, as well as sitting educational institutions, base transmission stations, petrol stations, eco lodges, campsites, power generation plants and factories,
   • Clear definition of what constitutes commercial and industrial use to guide applicants in selecting the correct land use, depending on the nature of the project they wish to undertake, 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.
6. 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.
7. The Stamp Duty (Amendment) Regulations, 2020: A legal notice was published under these regulations to amend matters of electronic transmission of documents. Provisions under the regulations are;
   • Allowing electronic stamping of documents by franking machines or by electronic means,
   • Allowing payment of stamp duty under the direction of a collector to be done electronically,
   • Electronic submission of documents through the National Land Information System,
   • Allowing modification of forms for electronic transactions, and,
   • Serving of notices authorized to be done electronically.
8. 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 under their control and actual occupation in electronic form,
   • 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.
9. 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.

3. Effects of Recent Land Regulations

Some of the expected effects of the recent land Regulations are;

1. Digitization of Land Records: The digitization of land records will facilitate easy, fast and efficient processing of transactions of land property by eradicating fraud and putting a stop to further deterioration of paper records, improve access, storage and retrieval of land records thus leading to efficient, timely and cost-effective land management processes, as well as promoting public confidence in the integrity and reliability of electronic records and electronic transactions,
2. Enhanced Ease of Doing Business: This will be achieved by the reduced period of application and registration of property from nearly three months to under two weeks, as well as the effort of devolved planning, standardization, and, streamlining of the processes of approval of strategic national and inter-county projects that require land,
3. Enhanced Revenue Collection from Land Transactions: The National Land Information Management System (NLIMS), will eliminate revenue leakages with the establishment of an electronic payment system. Rolling out a new Land Valuation Index to guide land valuations for investment and land compensation decisions, as well as the plans to draft a national property rating legislation to determine new land rates will ensure increased revenue as all properties will be captured within the valuation roll, and land rates based on improved property values,
4. Mitigation of Land Valuation Issues: The new valuation regulations will enable shortening of the lengthy process of acquiring land and buildings due the current delays at the Lands Ministry attributed to the shortage of government valuers, and,
5. Easier Access to financing and Loans: Provisions under the Sectional Properties Act such as property developers and apartment owners having greater transaction ability in financing and disposal of properties in the market with apartment buyers having title deeds as proof of ownership, as well as independent and complete ownership of properties, giving banks greater incentive to lend to apartment owners since charges can be placed directly on individual titles.

4. Conclusion

Land reforms in Kenya have over the years been a continuous process aimed at bringing about positive change in land management and administration. With land being one of the key enablers of the Big Four Agenda, the Ministry of Lands and Physical Planning has been implementing several strategic policies and administrative interventions, as well as administrative and legal reforms to streamline land administration and to address the issues of land ownership and use. We expect the new land laws to bring about change, consistency and consolidation of land laws in Kenya. However, more polishing of the regimes needs to be done to address the missing links that bring about controversies. In addition, to enhance the effectiveness of the regimes we recommend, i) consolidation of the land law into a few Acts to take care of the substantive land law, registration of land, planning and survey, ii) creation of public awareness on the land laws, and, iii) eradicating historical injustices such as irregularly allocated public land by the commission.

Disclaimer: The views expressed in this publication are those of the writers where particulars are not warranted. This publication is meant for general information only and is not a warranty, representation, advice or solicitation of any nature. Readers are advised in all circumstances to seek the advice of a registered investment advisor.