Markets & Finance

Building costs set to drop after State agencies scrap fee


Elimination of construction levies is expected to cut the cost of building. PHOTO | FILE

Investors have finally stopped paying punitive environment audit and building levies to the construction regulators, months after the Treasury announced phasing out of the charges.

The project fees had remained unchanged despite a presidential proclamation, making it costly to build homes, power plants and office towers.

The National Environment Management Authority (Nema) and the National Construction Authority (NCA) confirmed they had scrapped the fees in line with Cabinet and Treasury directives.

The two agencies had earlier claimed there was no legal backing for the removal of the levies and their budgets hinged on the fees.

Nema had in September 2013 removed a flat rate charge and introduced a minimum assessment fee of Sh10,000 or 0.1 per cent of project cost that did not have an upper limit.

Developers whose projects exceed Sh5 million also paid a levy of 0.5 per cent of the value of the contract to the NCA before they could start work.

Nema said in a notice on Monday: “In order to facilitate ease of doing business, the government has decided to scrap the levying by Nema of the aforementioned fees…Nema has ceased the levying of EIA (environmental impact assessment) processing fees with immediate effect. Nema remains committed to ensuring a clean and healthy environment for all Kenyans.”

NCA chief executive Daniel Manduku said the body had scrapped the 0.5 per cent ad valorem (based on the value of the contract) levy previously charged developers.

Experts said the move would not only be a big boost for developers but will also spur new housing developments.

“Their acceptance to comply is a great relieve to  developers…(It will lead) to significantly lowers costs for large-scale developers thus enabling real estate affordability, especially in the housing sector where there is a huge deficit,” said Johnson Denge, market research and site acquisition manager at Cytonn.

READ: Parliament faults Cabinet for scrapping construction levies

Mr Denge said this would add to the economies of scale that developers currently use to offer better pricing.

“Nema, for instance, licenses various other sectors which have direct impact on real estate. Examples are infrastructure development, waste disposal, mineral drilling.

“Reduction in cost in this area has a direct positive impact on real estate and investments in these sectors,” he said.

Mr Denge said the levies have previously made developers, especially non-institutional, shy away from conforming due to the huge cost associated.

Nema requires projects such as mineral processing, oil drilling, infrastructure development, real estate and waste disposal to be licensed before implementation.

County governments seeking a piece of the pie to grow revenue also charge various rates for building approvals on the same developments.

“With no levies, there will be no excuse and this will lead to safer building and habitable places. (It will also) lead to increased investments.

“Most investors shy away from real estate due to these heavy levies making most feasible business cases not to be implemented, especially where there is a requirement for these approvals in order to acquire initial financing, locking out new ventures into real estate,” he said.