Leasing Land in Kenya: A Beginner’s Guide to Understanding Lease Agreements

by | Aug 11, 2023 | Agricultural Land, Property Market Advisory Series, Real Estate Leasing, Real Estate Market Intelligence | 0 comments

  • Leasing Land: What are Lease Agreements?

  • Why is Leasing Growing in Popularity?

  • The Key Elements of a Lease Agreement

      • Details of the Parties Involved

      • Property Description

      • The Term or Duration of the Lease

      • Rent and Payment Terms

      • Security Deposit

      • Utilities and Maintenance Responsibilities

      • Restrictions and Rules

      • The Period of Notice

      • Legal and Late Fees

      • Endorsement of the Agreement

  • Leasing Land: Different Types of Leases

      • Periodic Leases

      • Short-Term Leases

  • Registration of Leases

  • Leasing Land: Advantages of Leasing

      • Cost-Efficiency

      • Flexibility

      • Lower Maintenance Burden

      • Taxation Benefits

  • Considerations and Drawbacks

      • Limited Control

      • Early Termination Penalties

  • Key Takeaways

Did you know agriculture is the largest economic sector in Kenya, and that the vast majority of agricultural production on commercial scale is achieved on leased land?
What opportunities lie in the leasing of property in Kenya? start by gaining some basic knowledge of land leasing as a commercial activity.

Leasing Land: What are Lease Agreements?

Leasing land, and in general, leasing property for a rental fee is one of the most lucrative ways to profit from the ownership of real estate assets. Leasing allows the property owner (landlord) to earn a passive income from their property while simulteneously allowing the lessee (tenant), the ability to utilize property they would otherwise be unable to afford to purchase outright.

In the world of real estate, lease agreements play a vital role in providing a legal framework for property rentals. Leases, or lease agreements are the binding legal agreement entered into by the proprietor/owner of a property (also referred to as the lessor or as landlord) in which the rights of use of the property are conferred to a lessee or tenant, and which clearly stipulates the terms and conditions under which the property can be used and the relationship that subsists between the two parties.

Leasing Land: Why is Leasing Growing in Popularity?

The most basic premise that makes leasing attractive is that it allows two parties to engage for economic benefit – one to utilize an asset they may not be able to afford to purchase to either generate an income or derive some other form of benefit, and the other to benefit by merely owning that asset.

Leasing, in particular the leasing of agricultural land, as an investment strategy, has gained significant traction post-pandemic as more property investors seek to diversify their risk exposure in the real estate market and augment their incomes.

While it is becoming increasingly unattractive to merely buy land speculatively, acquiring property which, on the other hand, can at the very least generate some revenue, is becoming an increasingly attractive proposition. Especially among the middle-class bourgeois, who tend to buy land almost exclusively for residential development in the indeterminate future, or speculatively. The slew of economic challenges currently being experienced both as a result of the Covid pandemic and due to events globally, has cooled off the hitherto bullish market sentiment on the acquisition of land. In particular, the acquisition of small-holder plots (burotti maguta maguta) which are notoriously difficult to sell or lease in the secondary market where there is no immediate value proposition in terms of generating an income.

For both prospective tenants seeking to rent a property and landlords looking to lease out their property investments, understanding lease agreements is critical for ensuring a smooth and secure rental experience.

In this comprehensive guide, we will delve into the core concepts of lease agreements, explore the key elements of a lease agreement, the different types of leases, and shed light on the advantages and drawbacks that leasing affords both landlords and tenants. We will in a follow-up post, explore the registration of leases, the key distinctions between registered and unregistered leases and the importance of registering lease agreements, especially as relates to commercial leases.

Leasing Land: The Key Elements of a Lease Agreement

In Kenya, unless otherwise provided in a lease instrument, lease agreements are governed by the general provisions of Part VI of the Land Act, 2012, as provided for under S.55(1) of the Act.

A well-drafted lease agreement should encompass essential elements to protect the interests of both parties involved. Here are the key elements found in a typical lease agreement:

1. Details of the Parties Involved:

The agreement will clearly identify the lessor (landlord) and lessee (tenant) with their full legal names and addresses, and clearly define the relationship between the parties to avoid any confusion.

2. Property Description:

The agreement will include a detailed description of the property being leased, including its physical location, physical address, unit number or land reference number (if applicable), and any specific areas or amenities accessible to the tenant.

3. The Term or Duration of the Lease:

It will specify the duration of the lease, whether it’s a fixed-term lease, month-to-month lease, or any other arrangement, and clearly outline the start and end dates of the tenancy.

4. Rent and Payment Terms:

State the monthly rent amount, the due date, and the preferred payment method. Additionally, mention any penalties for late payments or bounced checks.

5. Security Deposit:

Detail the amount of the security deposit and the conditions under which it will be fully or partially refunded at the end of the tenancy.

6. Utilities and Maintenance Responsibilities:

The agreement will clarify which party is responsible for paying utility bills and maintaining the property. Typically, landlords handle major repairs, while tenants handle day-to-day or routine maintenance.

7. Restrictions and Rules:

Outline any restrictions on subleasing, pet ownership, smoking, and other specific rules that tenants must abide by during their tenancy. In overview, the lease agreement may also include details about the rights and responsibilities of the landlord and tenant, such as who bears responsibility for paying utilities, property maintenance, and land rent and rates. It may also include exit provisions which speak to the condition upon which the property reverts into the control of the owner, as well as provisions on limitations of use such as provisions on subletting, use or storage of certain fuel types on the property, restrictions on the admission of domesticated animals and pets or even restrictions on the number of occupants allowed on the property.

8. The Period of Notice:

The agreement will include the notice periods required for lease termination or lease renewal. This will provide clarity on the actions required by either party at the end of the lease term.

9. Legal and Late Fees:

Mention the legal actions that may be taken if either party breaches the agreement and the potential consequences, such as eviction. Also, specify any late fees charged for delayed rent payments.

10. Endorsement of the Agreement:

Ensure both parties sign the lease agreement and date it. Signatures validate the contract and show mutual agreement to its terms

Leasing Land: Understanding Different Types of Leases

In the Kenyan context, lease agreements may be broadly classified into the following three categories:

Periodic Leases

Periodic leases, as defined in Section 58 of the Land Act 2012, are lease agreements whose term or duration is unspecified and where the parties to the agreement make no provision by which notice of termination of the agreement has been defined. In this case, the tenancy may be from week to week, month to month, year to year or such other period on which the rent is based. Further, for agricultural land, periodic leases are deemed to have a term of six months. Where a land owner permits the exclusive occupation of his land or any part of it by any person at a rental, but without any agreement in writing, that occupation is deemed to be a periodic tenancy. For periodic lease arrangements, termination takes the form of notice by either party to the other, with the length of the period of notice not exceeding the period of tenancy.

Short-Term Leases

The Land Registration Act, 2012 Section 58, stipulates that a short-term lease is a lease made for a term of two years or less without the option for renewal and includes periodic leases where the owner of land permits the exclusive occupation of the land or any part of it by any person at a rent but without any agreement in writing. Notably, short-term leases may be made orally or in writing and are by their nature not registrable interests in land. These leases, as distinguished from periodic leases, have a defined term.

Registered Leases

Lease arrangements that have a fixed term that extends beyond 2 years and those with the option to renew beyond two years and also the option for termination through the issuance of a notice, (but which are not by their nature periodic leases) are termed as general leases. Leases with a term exceeding 2 years should be registered.

Registration of Leases: How to Secure Your Rights & Interests Over Leased Property

Leasing Land: Advantages of Leasing

Leasing comes with several noteworthy benefits:

1. Cost-Efficiency

Leasing enables businesses to access expensive assets without incurring the full upfront cost of ownership. Instead, they can make periodic payments, preserving valuable capital for other essential operations.

2. Flexibility

For businesses that need to set up in diverse locations, which may require them to either be in one location for limited or short spells, or which require them to have robust mobility, room for expansion, or even those that require up-to-date equipment or technology, leasing offers the flexibility to upgrade or change assets easily, giving them an edge over the competition.

3. Lower Maintenance Burden

In many cases, the lessor assumes responsibility for maintaining the leased asset, saving the lessee from any additional maintenance costs they would have otherwise incurred if they outright owned the asset(s).

4. Taxation Benefits

To the lessee, costs associated with leasing, including the rentals payable to the lessor, are tax-deductible. This reduces their tax liability on the business they undertook using the land or property they leased. This benefit allows businesses leasing land or other property to significantly write off these costs of doing business against their revenues, thereby reducing their tax burden.

Considerations and Drawbacks

While leasing presents numerous advantages, it’s essential to consider potential drawbacks:

1. Limited Control

As the lessor maintains ownership, lessees may face restrictions on modifying or using the asset in certain ways. This may limit their utility for the asset in turn stifling their growth.

2. Early Termination Penalties

The premature termination of leases often results in penalties and/or additional fees, affecting the lessee’s finances. If an unforeseen event occurs that may cause the lessee to terminate the lease, say for example, if that event causes the business to shut down permanently, then this can leave the lessee in a precarious financial situation that may be difficult to mitigate.

Conclusion

Leasing is an integral form of investment in real estate. It offers access to valuable assets and properties without the burden of full ownership, providing flexibility to capital in the use of many real estate assets. Understanding the intricacies of leasing empowers individuals and businesses to make informed decisions. The benefits of leasing, such as cost-efficiency and flexibility, greatly outweigh any drawbacks, making it a pragmatic, viable and attractive option for many entities seeking to thrive in a highly dynamic marketplace such as the real estate market in Kenya.

As a property investor, if you haven’t yet begun to pay attention to this mode of investment in real estate, you need to pay closer attention to the vast opportunities that exist in the market today to generate stable income and utility from the land you own. We can help you achieve this!

Capital Gains Tax Skyrockets to 15% From January 1′ 2023- Investors Brace for Impact!

by | Dec 27, 2022 | Property Market Advisory Series, Real Estate Market Intelligence, Writer's Commentaries | 0 comments

  • What is Capital Gains Tax?

  • History of Capital Gains Tax in Kenya

  • Newly Introduced Change in Capital Gains Tax Rate

  • Calculation of Capital Gains Tax

  • Notable Exemptions to Capital Gains Tax in Kenya

  • Documents to be Submitted as Proof of Payment of Capital Gains Tax

  • Why Has Capital Gains Tax Been Increased?

  • Likely Impact of Increase of CGT on Property Market

  • Key Takeaways

Capital gains tax hike sparks outrage among property investors and realtors! Secretly, I have heard the plausible argument, steeped in political sentiment, that the threefold hike is targeted at weakening the political clout of a particular community.

What is Capital Gains Tax?

Capital gains tax is a tax that is levied on the profit made from the sale of certain types of assets, such as real estate or stocks.

Commencing January 1st 2023, capital gains tax, which had previously been levied at 5% on the gain made, will henceforth be levied at 15%.

It is important to note that some exemptions apply in the levying of capital gains tax.

Capital Gains Tax, often referred to as just CGT, is levied when a property is transferred.

In real estate transactions, CGT is levied on the vendor or transferor of the property against the capital gain that the vendor makes.

As the name suggests, the tax is levied on the capital gain that the vendor has made at the time of sale.

History of Capital Gains Tax in Kenya

Capital gains tax was reintroduced in Kenya via the Finance Act of 2014. The tax came into effect on January 1, 2015, following a 30-year hiatus since 1985. The tax has been levied at 5% since its reintroduction.

The operationalisation of the tax came with some hitches between 2016 and 2019 as it transitioned between manual and electronic payment modes

Notably, a legal challenge between the Kenya Bankers Association and the Kenya Revenue Authority when the latter twinned the payment of capital gains tax with the payment of Stamp Duty.

Newly Introduced Change in Capital Gains Tax Rate

Commencing January 1’ 2023, CGT will be levied at 15% as amended by the Finance Act of 2022 (Finance Act), which will see the rate of capital gains tax (CGT) levied increase from 5% per cent to 15%.

Calculation of Capital Gains Tax

By way of a formula, CGT could be expressed thus:

CGT                                               =                 5% (Net Transfer Value – Adjusted Cost of Property)

Where the
Net Transfer Value                  =                Transfer Value – Any Incidental Costs (that the vendor incurs on the sale)

Adjusted Cost of Property        =                Cost of acquisition + Enhancement Expenditure (including the cost of defending title over property and incidental costs of acquiring property)

Some Notable Exemptions to CGT in Kenya

Not all property transactions are subject to CGT.

For example, a property whose ownership is transferred to a beneficiary of an inheritance is exempt.

Similarly, the vendor of a residential property who has been the owner-occupier of that property for a period of at least three years immediately preceding its disposal is also exempt.

The Finance Act also describes what qualifies to be termed as a transfer of property for the purpose of levying CGT.

Here are some other real estate transactions where a property being transferred is exempted from the levying of capital gains tax:

      • Land transferred by an individual whose transfer value is Kshs. 3 million or less.
      • Where land has been compulsorily acquired by the government for infrastructure development.
      • Agricultural property situated outside a municipality that is smaller than 50 acres in size.
      • Property transferred/sold to administer the estate of a deceased person within two years of the death of the deceased/court decision.
      • Land that is vested in a liquidator or receiver
      • Property transferred between spouses or former spouses or their immediate family.
      • Transfer of property for securing a debt/loan
      • Where deemed by Treasury to be in the public interest, transactions of exchange of property that occur when companies are restructured.

Documents to be Submitted as Proof of Payment of CGT

Property vendors are required to submit an acknowledgement slip for the payment of capital gains tax.

Alternatively, where an exemption applies, an exemption slip should be submitted for the transfer to be registered.

Why Has Capital Gains Tax Been Increased

It’s simple. The government needs to raise taxes in an economy that has been hit by multiple shocks.

Drastically reduced activity in the real estate sector would account for lower volumes of sales/transfers and correspondingly lower collections of tax on these types of transactions.

It is no secret that real estate transaction volumes have taken a particularly heavy hit since 2020, causing jitters to many property investors in both commercial and residential property markets in the country.

Kenya, like many other countries globally, has been hard hit by the economic uncertainty that followed the unprecedented ravages of the Covid 19 pandemic.

Exacerbated by the looming global economic recession, high inflation rates, high cost of living, the rising cost of credit, an over-leveraged economy and a generally sour economic mood, the government will continue to seek out fiscal measures that will raise taxes.

By offering very high returns on public borrowing at a time of correspondingly high inflation, especially on infrastructure bonds, the government has stifled capital inflows in the property transfer market by draining out all the liquidity that could be directed at private investing.

In any event, very few attractive property investments can match the 14% ROI being offered on, say, public infrastructure bonds at this time.

At these rates, even traditional lenders would be more inclined to consider lower-risk assets (read here, government paper) than assets that have higher risk and take longer to realise.

Given the economic climate, raising CGT at this time makes sense. It is “low-hanging” fruit. Also, Kenya has had one of the lower rates for CGT on the continent. Perhaps this too may also justify the hike.

Secretly, I have also heard the plausible arguments, albeit steeped in political innuendo, that the tripling of the tax overnight is targeted at weakening the political clout of a particular community. Of course, that could be dismissed as conspiratorial. However, in the current dispensation, it is clear that nothing is what it has been sold as. Or, even that what something is, and what it is touted to be are not necessarily the same thing.

A three-fold increase overnight does seem rather overstated, especially given the government’s stated goal to increase homeownership. The move is regressive, to say the least!

Likely Impact of Increase of CGT on Property Market

It would be unexpected that the rise in the cost of taxes would result in diminished sales. Not in the current economic climate. Fiscal policy planners would have anticipated this and would be fairly certain that investors’ need to liquidate real assets in favour of cash to either refinance their operations or adjust to the current inflationary pressures would far outweigh their desire to hold on to their property – especially if those properties are not currently generating any income.

Conclusion:

While capital gains tax is based on self-assessment, individuals transacting property that meet the thresholds for the levy of capital gains tax should ideally maintain proper records of their transactions, in particular for any improvements that they may undertake during the tenure of their ownership of the property. These will be crucial in the accurate calculation of any capital gains tax liability.

The increase in CGT will adversely affect investor perceptions but this will more than likely be short-lived in the grand design of things.

Why Pension-Backed Mortgages in Kenya Are Unlikely to Return in The Near Future

by | Dec 27, 2022 | Property Market Advisory Series, Real Estate Market Intelligence, Writer's Commentaries | 0 comments

  • What Are Pension-Backed Mortgages?

  • Enactment of Pension-Backed Mortgage Regulations

  • Intended Purpose of Pension-Backed Mortgage Regulations

  • Legal Challenge to Pension-Backed Mortgage Regulations

  • Enactment of Pension-Backed Mortgage Regulations

  • Operationalisation of Pension-Backed Mortgage Regulations

  • Ruling on the Legal Challenge to Pension-Backed Mortgage Regulations

  • Why Were Pension-Backed Mortgage Regulations Deemed Unconstitutional?

  • Major Proposals by the Pension-Backed Mortgage Regulations

  • Reception Towards Pension-Backed Mortgages?

  • Which Way Forward for Pension-Backed Mortgages?

  • Key Takeaways

Pension-backed mortgages are secured against the savings a contributor in a mortgage scheme has amassed.

Pension-Backed Mortgages: What Are They?

Pension-backed mortgages are mortgages that can be accessed by contributors to retirement benefit schemes which allow the contributor(s) to leverage their savings in pension schemes to access financing.

To state it simpler, pension-backed mortgages are secured against the savings a contributor in a mortgage scheme has amassed.

Naturally, no fiscally-responsible government would allow a contributor to access 100% of their pension contributions to meet their housing requirements since the very essence of those contributions is to create a nest egg for the contributor’s retirement.

Inevitably, therefore, the assets against which the loan (mortgage) is secured, are partially against the contributor’s savings in the pension scheme and partially against the asset (house) against which it was borrowed.

Synopsis of Enactment of Pension-Backed Mortgage Regulations

In April 2020, the Government of Kenya, through the then Treasury Cabinet Secretary, published the Retirement Benefits (Mortgage Loans) (Amendment) Regulations, 2020. The amendments were made by the Tax Laws (Amendment) Act, 2020 to Section 38(1A) of The Retirement Benefits Act, No.3 of 1997.

Intended Purpose of Pension-Backed Mortgage Regulations

By allowing members of retirement benefits schemes to leverage their amassed contributions in their respective pension schemes, the goal was to unlock financing that could be targeted at home ownership, thereby accelerating the country’s homeownership goals that were a critical pillar of the Government’s Big 4 affordable housing agenda.

Legal Challenge to Pension-Backed Mortgage Regulations

In May 2020, civic-activist-turned-politician, Okiya Omtatah, with the backing of the Association of Retirement Benefits Schemes and the Association of Pension Trustees and Administrators, filed an application in the High Court of Kenya challenging the legality of the regulations.

Enactment of Pension-Backed Mortgage Regulations

Thereafter, in September 2020, the legislature approved, vide Legal Notice Mortgage Regulations LN 192 Retirement Benefits (Mortgage Loans) (Amendment) Regulations, 2020 – an amendment to the Retirement Benefits Act. The regulations were published on September 14, 2020.

Operationalisation of Pension-Backed Mortgage Regulations

As per the regulations, it would fall within the purview of the individual pension schemes to determine the procedure by which their members would apply to access their contributions into the scheme for the purpose of applying for a pension-backed mortgage. The regulations required individual members to make their application through the trustees of the scheme. Trustees from the different pension schemes would consider applications relating to the utilisation of the benefits by members and review their consistency with the Retirement Benefits Act and scheme rules.

Pension schemes would be given a year until September 14, 2021, in which they would “operationalise” the issuance of pension-backed mortgages, allowing their members to access their savings to acquire homes.

Ruling on the Legal Challenge to Pension-Backed Mortgage Regulations

Subsequently, on 23rd November 2022, the judge hearing the Judicial Review Application 095 of 2020, Republic v National Assembly & 2 others – the petition filed by Mr Omtatah – issued a judgement quashing the regulations that brought pension-backed mortgages to life in Kenya, citing a flawed process in their enactment due to lack of public participation.

Why Were Pension-Backed Mortgage Regulations Deemed Unconstitutional?

Because lawmakers did not allow for stakeholder engagement or robust public participation in the legislative process, Parliament, in passing the regulations that birthed pension-backed mortgages, had failed to meet the thresholds required by Article 118 (1) of the Constitution.

Major Proposals by the Pension-Backed Mortgage Regulations

As per the regulations, in a defined contribution scheme, an amount not exceeding 40 per cent of the member’s accrued benefits shall be available to a member for the purchase of a residential house, provided that such sum shall not exceed seven million shillings.

The residential houses that would have been eligible for purchase under these regulations would have to have been certified for occupation before the intended purchase – precluding the possibility that the funds could be used to either develop property on vacant land, or even secure houses being sold under off-plan schemes. Eligible homes for purchase would include those developed under government initiatives, such as the AHP, and those being offered for sale by private developers, SACCOs, insurers and entities running tenant purchase arrangements.

Pension fund trustees would have been allowed to offer members the option to deploy the mortgage funds as either a guarantee to access a mortgage or utilise their benefits for the purchase, but not both.

Further, scheme members would only be allowed to access the benefit as a one-off, locking out members who were already receiving their pension earnings and those who had already attained retirement age.

Reception towards Pension-Backed Mortgages?

The idea of pension-backed mortgages in Kenya is not new. It was initially touted more than a decade ago. Not until 2020 were there any hard and fast regulations to facilitate the realisation of homeownership via pension-backed mortgages.

Now that there have been missteps with this initial substantive effort, it seems less likely that pension-backed mortgages will become a reality.

The new regulations caused a stir when they were first announced, with a very warm reception to the idea that pensions, traditionally deferred resources, could be used to access homeownership. On the other hand, uptake did not reflect the original enthusiasm.

The market has had several challenges that muted interest in pension contributors, not least of which have been the lean economic times following the Covid-19 pandemic and a looming recession as we enter 2023.

Nonetheless, the new regulations were perceived as a positive step in the right direction. While they were well within their rights to do so, it is telling that the new regulations were fundamentally opposed by industry stakeholders.

Which Way Forward for Pension-Backed Mortgages?

On the face of it, the opposition of the industry stakeholders via their constituent bodies, the Association of Retirement Benefits Schemes and the Association of Pension Trustees and Administrators, is obviously merited on the grounds that industry stakeholders were not involved in the formulation of the new regulations.

However, it is also indicative of an industry that isn’t particularly interested in actively seeking approaches to meeting the needs of its membership – the actual contributors to the pension schemes.

Indeed, it would be interesting to see if these same industry bodies will actively spearhead initiatives that could eventually make pension-backed mortgages a reality. They could do so by either proposing amendments to the regulations that had been proposed or even actively lobbying Parliament to relook at those regulations and championing the establishment of a workable framework of solutions that would make pension savings accessible to prospective homeowners.

Conclusion

The pension industry in Kenya controls over KES 1.5 trillion in assets, with under 20% penetration of the formal labour market in the country. There is a glaring opportunity here not just to spur homeownership, but also to grow the industry.

Pension-backed mortgages would be an effective tool to deepen the conversation between finance and growing access to homeownership. Stakeholders will need to partner on initiatives like this if the goals of homeownership are to be achieved.

Top 7 Tips To Take The Headache Out of Selling Property in Lean Economic Times

by | Dec 20, 2022 | Buying, Selling, Leasing & Rentals, Property Market Advisory Series, Real Estate Market Intelligence, Writer's Commentaries | 0 comments

  • Selling Property During Lean Times

  • The Major Challenges of Selling Property During a Recession

  • Selling Property Tip #1: Make Your Offer Stand Out

  • Selling Property Tip #2: Selling Property

  • Selling Property Tip #3: PRICE IS CRITICAL – Price right and qualify your leads

  • Selling Property Tip #4: Upgrading your property

  • Selling Property Tip #5: Manage your expectations as you work towards the goal

  • Selling Property Tip #6: Get trusted help – and be sure to take it if you ask for it.

  • Selling Property Tip #7: Don’t Miss The Exit Ramp

  • Key Takeaways

Selling your property at any time is challenging. Much more so during an economic downturn. If it were easy, there would never have been any need for property agents. In a recession, markets go soft and depressed. Therein lies the rub.

As we look to 2023 and beyond, it is evident that, at both a national and global level, an economic recession is looming. There has been a multiplicity of factors that have made selling property, particularly, very challenging during the last 3 years. And the onslaught seems unabated.

Traits of an Economic Recession

Typically, these traits would serve as a good indication that a recession is nigh:

  • Multiple external and internal economic shocks (COVID-19 pandemic, Ukraine War, Elections, massive external debt repayments due)
  • Massive job losses and diminishing sources of income
  • Stock market decline
  • Rising inflation and her torturous twin sisters rising unemployment and increased cost of living
  • Decline in value of the currency (KES has lost more than 20% of its value against the USD between 2019 and 2022).
  • Massive external and internal borrowing by the government and high borrowing and lending interest rates (IFB issues by GoK on November 2021 recorded 13.93%!)

Certainly, in December 2022, how many of you would say that these traits seem at all unfamiliar about Kenya today?

The Challenge of Selling During a Recession

The challenge ceases, initially, to be about selling and it becomes all about the generation and qualification of leads. Positioning your offer so that you can get it in front of the right eyeballs and understanding what the market is likely to respond to is the trick.

When selling property during a recession, the principles remain the same as with any other time in any market. But conventional approaches are unlikely to hold up to the test. The condition of the market is erratic and unpredictable, so what needs to change, and what is more determinable, is your strategy and approach.

Seasoned property agents will also be a lot more astute about the clients they opt to work with.

Tip #1: Make Your Offer Stand Out

This isn’t just about a good script for your offer or an amazing set of property photos and videos. No. It’s the full package. You can’t just list on every property listing platform either, or select ten different agents to work with.

No. You’ll need to go the extra mile. Attract prospects by ensuring your property is looking its swankiest whenever it is shown. A dirty, forlorn-looking property that is visually flat and unkempt won’t cut it. Trim the lawns, cut the bushes – go all out to impress.

Declutter the property. It is an unattractive proposition for any agent to show a house that is brimming with junk lying all over and makes selling property needlessly difficult.

A clutter-free space is warm and inviting and gives a mental feeling of being habitable. Clutter is a big put-off. If you can afford it, pay for professional staging and ensure your photos carry the professional polish to make prospects look twice in your direction.

Get in on the act – put together a presentable social media kit and choose strategically which agent(s) to work with.

Again, consider seriously putting some money into the marketing of your offer. Ads are a great way to diversify away from just property agents. You can work with an experienced agent on this, or choose to go it alone – up to you.

Tip #2: Familiarise yourself with the market and strategise around this knowledge

Decisions around pricing can accelerate the speed with which you can exit from the market. But how would you know where to establish an ideal price point if you are uninformed about the market in which your offer subsists?

How will you price effectively if you have no idea of who is offering what and where those offers outdo yours? If you are selling your property, do you know what other similar properties are selling for? How about how much they are renting for?

If you met a prospect and didn’t have this information, and perhaps that prospect was considering the property as an income investment, what will you offer them to estimate their returns? You would have nothing to say. Selling property is aided when comprehensive information is available.

Despite the gloomy outlook of the market, there is almost always a prospect who may be considering exactly what you have to offer – but you have to position your offer to connect with them. You cannot do this if you are completely clueless about the market.

Tip #3: PRICE IS CRITICAL – Price right and qualify your leads

During a recession, the few buyers in the market tend to be more informed than the average buyer. They smell blood in the water; they will only pursue a bargain. However, this shouldn’t be confused with advice to price at the bottom of the market.

As the number of distressed homeowners rises with rising loss of livelihoods and increased inflation, distress will often culminate in the loss of homes. Selling property in these conditions can be fraught with lots of anxiety. As a seller, you want to get ahead of that curve – the worst of all possible outcomes.

The right price point, at least one that invites offers, is advisable. Of all the decisions that you need to consider when selling property in a recession, the pricing decision is the most critical. You need to decide what your most comfortable exit point is – not your ideal. You want to communicate that price to the market in such a way that allows you to call attention to your offer but still exit without underselling.

Research comparable offers and make sure to qualify only those leads that present as serious prospects from the offers they present.  Qualified leads tend to understand the market and will ask questions they can confirm from available market information. They will rarely make offers that are well outside of the range of market availability unless they sense very high levels of desperation in the seller. Sure, they will want to strike a bargain. But if they are committed, they will also want to ensure that their offer sounds reasonable in order to get to a close.

Tip #4: Upgrading your property

If you are on a shoestring budget, as most sellers in a recession may be, then you want to direct any money you spend on making the property sellable to just the most critical factors.

First, any upgrades that would distinguish your offer from others within earshot are welcome only if you can afford them. What you want to make sure of is that your property meets all standards of health, safety, security and environment (HSSE).

No uncollected hazardous litter, no vermin and pests lurking in overgrown bushes, and no structural faults that could cause electrocution or personal injury. The most basic of these should be attended to first. Thereafter, go ahead and spoil your prospects with upgrades of the more elaborate kind if you can afford them – especially if they add value that exceeds their cost.

Selling property that is well-maintained is definitely more appealing.

Tip #5: Manage your expectations as you work towards the goal

Many sellers get very frustrated with the process of engaging with prospects in this kind of market. Understand that there will be very few prospects and a lot more tentativeness even among the few you will find.

Prospects are likely to be spoilt for choice given the desperation in the market. Access to credit facilities is a lot more muted in a recession too, which can lead to prolonged timelines for closing even when a prospect turns into a buyer.

Within reason, sellers can navigate the market much better if they have a keener understanding of these issues and expectations.

Tip #6: Get trusted help – and be sure to take it if you ask for it.

Get the assistance of people more experienced with handling the market than you may be. There is no point in seeking help though if you are unwilling to take it.

If you are working with property agents, listen keenly for the things said and the ones unspoken. They can offer you a clear window to see the market vividly and advise you on your next moves.

Perhaps seek more to pick up the cues they will offer, rather than to merely instructing them on what to do or what your expectations are. Selling property by collaborating closely with your agents will be.

Tip #7: Don’t Miss The Exit Ramp

It’s easy to get enamoured with the possibility that you could do better. After all, you could never go wrong with real estate, right? Capital gains were assured, they told you, right?

And, you possibly could. Don’t get me wrong.

What truly begs an answer in these market conditions isn’t whether you could do better or not, but whether you see a path to exit gracefully, even if the option before you does not present the most ideal off-ramp.

More so if you desperately need to unshackle yourself from a transaction that is weighing you down.

To illustrate, here is an experience I had in 2020/2021. I was approached by a seller who gave instructions to dispose of an apartment she owned. Four months into marketing the property we secured her an offer which she promptly rejected on price, even though it was a cash sale.

The offeror had offered a price that was slightly higher than the Forced Sale Value (FSV) price of a similar apartment in the same complex, but, naturally, significantly lower than the property’s valuation. In Kenya, the Forced Sale Value is 75% of the property’s valuation.

Let me clarify. Say a property is valued at 10 million, then its FSV would be 7.5 million – the lowest price demanded for the property at auction. In this scenario, my seller, who was already in default on her mortgage, was offered the equivalent of 87.5% on the valuation. Obviously not ideal until you consider the alternative.

The prospective buyer was market-savvy. He had elicited information that helped him determine that there were at least 3 other units in the same building that were already in foreclosure. He was willing to negotiate a higher price for my seller’s unit based on the information he had because he preferred it.

My seller flatly disengaged only to revert 4 months later with the intent of re-engaging the prospect on the terms he offered when the gravity of market conditions finally dawned on her. However, the prospect had since moved on and two years on the unit eventually went into foreclosure.

Conclusion

There is little going on in the market that can be described as normal during a recession. The idea that your capital gains are assured can quickly become the stuff of myth.

If you can hold out for a lot longer, more power to you. But if you need to, find the nearest exit for a graceful retreat at the earliest opportunity.

Will The Ongoing Title Conversions Affect Your Land Ownership Rights?

by | Mar 24, 2021 | Property Market Advisory Series, Property Transfer Guide, Real Estate Market Intelligence, Writer's Commentaries | 0 comments

  • What Necessitated The Title Conversions

  • Title Conversion Rollout Process

  • What Will the Effect of Title Conversion Be on Current Land Ownership?

  • Title Conversion: What Happens To Title Documents Issued As Security?

  • Title Conversion: What Should You Do If Your Property Is on a Title Conversion List?

  • Title Conversion: What Process Shall You Follow To Receive Your New Title

If you own a piece of land in Nairobi, including an interest in land situated within Nairobi County (and eventually across the country) then you need to be appraised on the recent development of title conversions.

Context: What Necessitated The Title Conversions?

Despite the seeming suddenness of the title conversion process, it is deeply rooted in the land management and administrative reforms that have happened in Kenya prior to and since the enactment of the Constitution of Kenya 2010.

The title conversion process will be implemented in phases (batches) across all land registries in the country as an integral component of the social and administrative reforms that were envisaged by the enactment of the Constitution of Kenya 2010 which saw the introduction of new legislation designed to establish more efficient administration and management of land, curb the incidences of land fraud and introduce greater efficiency in the conduct of property transactions.

The Government of Kenya took the decision to implement these reforms as a key aspect of the country’s Vision 2030 agenda, which is implemented through five-year Medium Term Sector Plans. Among the reforms include the modernization, expansion and increase of land registries, the development of a National Land Information Management System, the establishment of a Land Records Conversion Centre (LRCC) for the digitization of land records, the land adjudication and titling programme which is a social reform measure which bequeaths especially small landholders greater autonomy and benefits of land ownership, preparation of a National Spatial Plan and County Spatial Plans, land cover and land use mapping – which includes the revision of topographical and thematic maps, the review of physical and land tenure profiles, the establishment of Special Economic Zones and a myriad other reforms.

See the Sector Plan for Land Reforms 2013-2017.

Title Conversion was the natural progression from the consolidation of land laws in the country and was envisioned as an integral activity of the flagship project to establish a National Land Title Register under the Vision 2030 Sector MTP of 2013-2017, in accordance with the Land Registration Act, 2012.

The National Land Title Register would be established to contain all land records in the country with the conversion of existing land under various land registration statutes to the Land Registration Act, 2012 being one of the activities that would be implemented.

The conversion would also facilitate the transfer of the converted land records to the county land registries for improved service delivery, planning and efficiency and the issuance of both manual and digital certificates of title, as well as providing a more efficient mechanism for the resolution of land fraud and disputes.

Title Conversion: The Rollout Process

Prior to the Land Registration Act, 2012, land registration was done under several legislations that included the Registered Land Act (RLA), the Registration of Titles Act (RTA), the Land Titles Act (LTA), and the Government Lands Act (GLA), all of which have since been repealed by the enactment of the Land Registration Act, 2012.

As of the date of publishing this blog piece, there are already four Gazette notices (No. 11348 issued on 31 December 2020, No. 520 issued on 26 January 2021, No. 1706 issued on 23 February 2021 and No. 1707 also issued on 23 February 2021) issued pursuant to regulation 4 (4) of the Land Registration (Registration Units) Order, 2017, by the Cabinet Secretary for Lands and Physical Planning, notifying the general public that land reference numbers within the jurisdiction of the Nairobi Land Registration Unit have been converted to new parcel numbers.

The implication is that all transactions or dealings relating to the parcels with converted registration details shall from April 1, 2021, be carried out in the new registers. Currently, the batches against which conversion lists and cadastral maps have been issued to date only affect land held under the Nairobi Land Registration Unit.

What Will the Effect of Title Conversion be on Current Land Ownership?

In essence, the effect of the conversion will be the issuance of new title deeds under different/new registration numbers with the purposed of unifying and consolidating the registers under these hitherto laws which have since been repealed and then place the registration under a unitary law—the Land Registration Act, 2012.

It is noteworthy to mention that the conversion of titles is deemed to be purely an administrative change and is not expected to occasion the alteration of land sizes, nor to interfere with the ownership rights or in any way take away any obligations or interest thereon.

The administrative goals of the conversion are many but it is envisaged that the title conversion will reduce the complexity of land registration in the country not only in the hopes that land fraud can be reduced, but to also introduce greater efficiency at the registries.

The conversion process will eventually be rolled out all across the country and will, with each batch, involve the preparation of cadastral maps alongside a corresponding conversion schedule detailing both the old and new title numbers for all the parcels of land within the registration unit/section/or block, with the corresponding sizes of each of the units on that cadastral map. The Cadastral maps will be detailed and will include information on ownership, size of the parcel and any changes that have occurred in the proprietorship of the property.

Title Conversion: What Happens To Title Documents Issued As Security?

The registered owner (proprietor) of the land is required to liaise with the parties that have a secured interest in the property to apply for the replacement which shall nonetheless have any prior registered interests noted in the registry.

Title Conversion: What Should You Do If Your Property is on a Title Conversion List?

  • Note the new title registration number and keep a record of it.
  • Compare the record of the new title registration number to the property details in the cadastral map with the record of your current title to ensure that they match. Note that ownership, size, and any interests registered against an old title will not be affected.
  • In the event that there are discrepancies noted, you may proceed to lodge a complaint with the Registrar of Lands. Upon the issuance of a gazette notice for title conversion, any person with an interest in land within the registration unit who is aggrieved by the information in the conversion list or the cadastral maps has 90 days from the date of the gazette notice to make a complaint in the prescribed format to the Registrar or to apply to the Registrar in the prescribed format for the registration of a caution pending the clarification or resolution of any complaint. The Registrar is required to resolve the complaint within 30 days of the same.

It is important when a gazette notice is issued to effect title conversion that the proprietor or anyone with an interest in the property ensures the details of their land are correct.

However, a landowner or any person with an interest in a parcel of land listed for conversion, who may feel aggrieved by the changes to the land reference numbers, has the right to make a complaint to the Registrar of Lands.

Title Conversion: What Process Shall You Follow To Receive Your New Title

After the lapse of the 90-day notice period, you will be required to surrender your current title using the prescribed procedure (provided for in the Gazette Notice specific to the conversion list in which your property appears) in order to receive your new title deed with the new title number. The notice and procedure for the surrender their current titles will be issued by the Ministry of Lands will

As a proprietor of the land, you will be required to submit to the Registrar of Lands a completed Form LRA 97 with the original title deed alongside certified copies of your identification (individuals) or certified copies of the certificate of incorporation and identification documents of the directors or partners if the property is registered in the name of a corporate entity.

Due to the large number of fraud cases associated with land transactions in the country, the move to introduce the reforms and to effect the administrative changes occasioned by the changes in law was always going to be met with some degree of suspicion. However, the Ministry of Lands has gone to great lengths to assuage these fears and even offer clarifications on what the changes actually mean, and how they will be effected

In line with the land registration process now being managed and administered under a unitary legislative framework, the Land Registration Act, 2012, deed plans (Survey Maps) will effectively be replaced by what will be called Registry Index Maps. Currently, you can buy survey maps from the Department of Surveys under the Ministry of Lands and Physical Planning. The same will be true for the Registry Index Maps. The key distinction between the two will be that with the Registry Index Maps, all land parcels within an area will be displayed on the map, unlike deed plans, which only display the records of a single parcel.

Each proprietor and anyone with an interest in land affected by the changes, as they occur, needs to inform themselves about the changes and how those changes will affect them. This means that in due course, as more and more registration units across the country are folded into the title conversion process, the general public will need to be aware of the process and to ensure that they eventually secure their rightful ownership documents.

While the title conversion process has already rolled out in Nairobi County, it is expected to take 2 years to migrate from the old system of land registration to the new process across the entire country, with all the registration units across the country completing their conversion lists and cadastral maps for the same by December 2022.

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