Fall in property taxes signals low land, house sales

Property taxes contracted by Sh213 million in the first quarter of the current financial year, Treasury data shows, signalling depressed deals at the time most businesses and families were recovering from Covid-19 knocks.

The Kenya Revenue Authority (KRA) received a Sh3.53 billion cut from property transactions in the July-September period, a 5.68 percent drop compared with the Sh3.75 billion collected in the corresponding period last year.

Transfer of land and buildings attracts a five percent capital gains tax paid by the seller on net earnings from the sale, while a buyer is charged a stamp duty at the rate of four percent of the value of property in towns and two percent in rural locations.

Quarterly surveys by Kenya Bankers Association and HassConsult showed a general slump in demand for property with businesses reportedly recovering from flagging sales, while earnings by working middle-class had been hit by Covid-induced job losses and pay cuts.

KBA Housing Index, for instance, showed demand for apartments shrank 63 percent in an overall subdued price trend.

Demand for bungalows and maisonettes, however, expanded by nine percent and 72 per cent, respectively.

HassConsult, which conducts a quarterly property pricing index in Kenya based on advertisements, said land prices in the review period dropped 0.94 percent compared with a growth of 0.22 percent in a similar period last year.

Property taxes are a major source of revenue for the government, with Treasury targeting Sh17.34 billion the fiscal year ending June 2021 after the taxman netted Sh11.71 billion a year earlier.

Treasury Cabinet Secretary Ukur Yatani has gazetted regulations which allow chief government valuer to appoint private practitioners to conduct property valuation on behalf of the government in a bid to shore up property tax receipts this financial year.

The Stamp Duty (Valuation of Immovable Property) Regulations 2020 now give property buyers the option of either using civil servants or hiring an approved valuer.

“By excluding private valuers from valuations for stamp duty, transfers of immovable property (land) have always suffered avoidable delay, since government valuers have had challenges coping with the routine workload,” Ibrahim Mwathane, the chairman for privately-run Land Development and Governance Institute, told the Business Daily in September.

“If the regulations are effectively implemented, one would expect a reduction in the turnaround time for transfer transactions countrywide, since there will be more valuers available to deal.”