Property owners in Nairobi could pay higher land rates as City Hall prepares to start pegging charges on both the plot value and developments on the property.
The county presently levies rates on land without accounting for the value of the buildings that sit on the property.
The proposed charges, which are contained in Nairobi’s development plan running to 2017, will see City Hall develop a graduated rate system that accounts for the number of floors of properties.
This means that properties that generate huge rental incomes or of high value will pay higher land rates that ultimately will increase county revenue from property tax way above the Sh4 billion Nairobi expects to collect in the current financial year.
“Graduate rate scale dependent upon land valuation (location) and building structure (single and multi-storey),” says City Hall on revenue collection strategies its working on to widen Nairobi’s tax base.
Currently, property owners pay rates at 34 per cent of the unimproved site value based on the 1980 valuation roll, which apportions worth of land depending on its location with plots in the central business district and high-end locations like Karen attracting higher charges compared to those in Eastlands.
City Hall doubled the charge to 34 per cent last year in the race to increase revenues for a county that is struggling to meet its growing expenditures.
Property experts are in support of the rate that is based on both the land and property value, arguing that City Hall is losing billions of shillings given that Nairobi is fully developed and there are few unused plots.
“The (proposed) system is more equitable like income tax. If you earn more from the property, you should pay more than a person who holds an undeveloped plot,” Reginald Okumu, managing partner of Ark Consultants – a Nairobi-based property and valuation firm – told the Business Daily on Thursday.
Mr Okumu said City Hall should adopt a hybrid system where it would retain the current property tax based solely on land value to encourage real estate activity in undeveloped zones.
“A property tax should serve a purpose besides generating income. If you want to encourage development say in Ruai, you can’t levy an improved site value as you’ll discourage development.
“But in the CBD, which is already developed and you want to cool off development and properties have a high value, then rates based on property value are best,” said Mr Okumu.
City Hall is seeking to cash in on the property boom backed by swelling incomes and large numbers of young people moving to urban centres and starting families has seen home and land prices double over the past five years. Construction projects are also mushrooming.
Much of the demand is also riding on Kenyans’ love affair with investment in plots of land.
Different jurisdictions use different methods to levy property rates. In Tanzania, for example, the tax is based on the value of the building.
In other countries like India and the United Kingdom, the tax is based on the income (rent) generated or an assigned rent estimated to be generated from the property.
In the US, property taxes are based on the land and value of the developments on the property.