Home construction must be completed in five years

Property developers and individuals building homes will have to complete construction within five years or face penalties under a new law proposed by the government.

The Physical Planning Bill, 2015 say the five-year period will start once an investor is issued with a development permit. This will be a blow to those who prefer to build in stages and will also affect those who suspend construction after running out of funds.

“Where an applicant is granted development permission for building works, that applicant shall complete those building works within five years after receiving the development permission,” says the Bill sponsored by Leader of Majority Aden Duale.

“The planning authority may impose conditions or impose a fine to be prescribed in regulations on an applicant for development permission for building works where the applicant fails to complete the building works within five years.”

The issuance of building permits is a county function and the devolved units will also be responsible for levying the fine or imposition of conditions.

The Bill allows counties to make regulations for the implementation of the law and this means governors will have the powers to set the fines for those in breach of the planned five year rule.

Most Kenyans prefer to develop their homes in stages using savings and bank loans, delaying completion of some projects by years.

This development model has been blamed on the high mortgage rates and upfront costs that is making it difficult for a majority of Kenyans to own homes financed by commercial banks.

Data from the Central Bank of Kenya (CBK) shows that the average size of mortgages increased to Sh7.5 million last year.

READ: Growth in housing market cooling off, says KBA

According to the CBK data, the average home loan rose from Sh6.9 million in 2013 and Sh6.4 million in 2012, a jump blamed on high interest rates, expensive homes and upfront fees.

Mortgage lending increased last year by nearly a fifth to Sh164 billion held in 22,013 accounts, up from 19,879 a year earlier and 18,587 in 2012.

The average mortgage interest rate stood at 15.8 per cent last year, down from 16.37 per cent in 2013. At 15.8 per cent, those borrowing Sh7.5 million for 10 years will need to pay Sh124,701 per month and Sh109,108 if the mortgage runs for 15 years.

This makes it difficult for those earning less than Sh300,000 monthly to qualify for the average home loans, given that banks demand that borrowers retain a third of the pay after all deductions.

Upfront costs such as legal fees, valuation fees and stamp duty were cited by 15 per cent of the bankers as hurdles to accessing mortgage.

Homes Universal chief executive Daniel Ojijo said the five-year rule is punitive given some of the delays could be the product of other regulatory conditions. “You can get a development approval and spend the next one year trying to secure a Nema (National Environment Management Authority) licence,” he said.

He added that other issues like a lack of infrastructure also impacts on how fast a developer can complete their buildings.