Commercial banks were on Thursday scouring their records for signals as to how big the government’s decision to revoke more than 130 titles for prime properties in Nairobi, the first of a countrywide cancellation of dubious land ownership deeds, would damage their loan books.
Lands minister James Orengo said his office had used executive orders to cancel 137 titles that were illegally issued for public land without following due process.
Repossession of public property under executive orders means that the private claimants will not be compensated and renders any business transactions conducted on the basis of cancelled titles null and void.
Mr Orengo, who was flanked by his Housing and Immigration counterparts when he made the announcement, said that between 1990 and 2002 much of the land earmarked for public utility purposes was irregularly allocated and title deeds issued to private developers.
Quantity surveyors said the total value of the properties in question stood at more than Sh1 billion signalling the extent of damage to banks that lent money to the land owners with the titles as security.
Mr Orengo insisted that whereas the government was keen to protect commercial banks, cancellation of the titles was meant to send a strong message to the lenders that they needed to ascertain the authenticity of collateral presented to them by borrowers.
“The procedure for ascertaining the history of any parcel of land is clear, and if banks failed to follow it, then we are not responsible for the losses incurred because of this action,” he said.
To unravel the extent of the irregularities, Mr Orengo told journalists how a private developer illegally acquired prime property estimated to be worth more than Sh200 million that until recently housed units of Administration Police in Nairobi’s Upper Hill area next to the Prison Headquarters.
Last year, a fire broke out in the premises consuming the semi-permanent units only for a private developer to claim its ownership despite records showing that it belonged to the Ministry of Immigration and Registration of Persons.
The new owners - Rosestar properties - have since used the plot as collateral for a multi-million shilling loan from a commercial bank that they are yet to start servicing.
In Kitale the parcel on which sits Mt. Elgon Hospital, and held in trust by the municipal and county council was transferred to a private liability company that proceeded to take loans against the property.
John Wanyela, the chief executive of the Kenya Bankers Association (KBA), said land titles remain key to secured debt in Kenya and confirmed that a significant portion of the total loan portfolio is backed by land as security.
He however said the lenders are expected to have demanded alternative security in cases where documents were presented for parcels of land whose ownership was questionable.
“Information about some of the repossessed plots has been in public domain for long and am sure banks must have taken precaution before lending on their account,” said Mr Wanyela, adding that most banks considered more than just security, in determining a client’s creditworthiness.
“In cases where the banks are stripped of the collateral, they have to pursue the borrowers most of who remain creditworthy even after they are dispossessed,” he said.
Mr Wanyela, however, warned that the government’s handling of genuine title holders will inform how financial institutions rate the document in future transactions.
Mr Orengo said illegal acquisition of public land by private developers had been done in a similar fashion that involved the initial transfer from government to private ownership.
The new owners then used the titles as collateral to obtain huge loans from commercial banks.
The money was then diverted to other uses and the loan servicing stopped leaving the lender with the grabbed plot.
Use of executive order to repossess the public plots is informed by a similar one in 2003 when the newly elected Narc government invoked the provision to take over the Kenyatta International Conference Centre (KICC), which had been illegally transferred to the former ruling party Kanu.
The radical move is once again expected to rekindle debate on the sanctity of title deeds, which determines the respect to legal contracts and ultimately Kenya’s suitability as a business destination, given the central role that land plays in the economy as a factor of production.
Yesterday, Mr Orengo was tight-lipped on the fate of third parties and other subsequent owners of the irregularly acquired land, which in some instances changed hands many times since leaving government books.
The Kenya Alliance of Residents Association (KARA) immediately opposed the title deeds revocation, terming it un-procedural.
Steven Mutoro, the association’s chief executive said the Lands Act does not give the minister such powers.
“You cannot cancel a legally issued title deed without a constitutional court hearing,” he said.
KARA said that although the minister had good intentions, a spontaneous reaction was bound to pollute the business environment, especially with regard to third party transactions.
But the Kenya Lands Alliance (KLA), a non-profit making organization, supported the move saying the Ndung’u Lands Report had recommended a ‘case by case approach’ in reclaiming public land lost to private developers.
Lumumba Odenda, the organisation’s national coordinator, however warned that the government may be held liable in cases where the irregular transfers involved legal documents.
“If the title deeds in question went through the due process, it means the government was party to the transaction hence liable,” said Mr Odenda.
On the looming titles shake up in the banking sector, the KLA co-ordinator maintained that banks shouldn’t be used to sanitise fraudulent dealings and those that were party to illegal transactions should be ready to face the consequences.
Mr Orengo said he had not preferred judicial processes in his bid to recover the land because it was an open secret that the courts are irredeemably slow and inefficient, necessitating change of tact.
He warned that a cabinet memo to fast track repossession of more government land illegally hived off was in the pipeline.
“Instead of going to court to recover irregularly acquired land, we will repossess and wait for any aggrieved parties to go to court,” the minister said.
The Kenya Land Alliance supported the minister’s action saying the court action was likely to drag on for years and possibly never recover the stolen land.
The judiciary itself has been a major victim of the land grabbing that has persisted in the country since the mid eighties.
Among the parcels of land reclaimed are four plots that were meant for the expansion of law courts - two in Nairobi, one in Mombasa and another that was hived off from the Eldoret law courts.
Directing the minister of Immigration to immediately take back possession of the Upper Hill plot, Mr Orengo said the current owners had even attempted to re-sell the land to the government, hoping to redeem the loan and make a profit.
Part of a 43 hectare land allocated to Kitale Academy said to have been hived off, has also been repossessed.
Other key properties to be reclaimed include the car parking lot at the Nairobi’s Nakumatt Westgate shopping mall, and part of the Mara game reserve that was allocated to Livingstone Ole Ntutu and reverts to the Narok County Council.
At the Kenyan coast, Jomo Kenyatta beach has moved from municipal council trust to PS Treasury and Natural Heritage, following the council’s attempt to transfer it to an individual.
The same prescription applies to Kongowea market.
In Kisumu land leased to Waswith for 99 years with effect from 1st February 1991 was repossessed as it has remained undeveloped for over 20 years.
This, despite the lease providing for development within 24 months.