The National Construction Authority (NCA) is seeking to collect fees amounting to Sh1.7 billion from real estate developers which accrued before the scrapping of the construction levy in 2017.
The regulator will hire debt collectors to recover the amount that was applicable on all construction projects with a contract value exceeding Sh5 million. A Cabinet memo of November 2016 scrapped construction levies charged by State agencies and counties to lower project costs.
“The Authority had accumulated outstanding levies amounting to KShs 1.7 billion owed by project developers as at December 31, 2017,” said the NCA in the notice calling for interested debt collecting firms.
“In line with its strategy on debt collection, the Authority wishes to engage the services of a debt collection agency”.
The regulations providing for the imposition of the construction levy at the rate of 0.5 percent of the contract value came into force in July 2014 before they were scrapped.
The government removed fees imposed by the NCA and other agencies such as the National Environment Management Authority, arguing that they have been a barrier to investments.
The agencies that collected the fee had argued that the Treasury had approved their budget, including the collections.
The NCA had spoken against the scrapping, arguing that accounts for more than 70 percent of the authority’s revenue, hence its removal would hurt its operations.
Activities that the levy was supporting include the authority’s strategic objectives such as training, research, and sustainability.
The consulting firm will be engaged for 24 months and will be required to work closely with the finance and accounts department, recover outstanding debts, and constantly keep both the debtors and NCA updated on the recovery process progress.
The adviser will also be mandated to maintain accurate records for recovery made and obtain the necessary information needed to succeed in the recoveries.
The scope of work covers negotiating and managing reasonable debt repayment plans with the debtors to ensure full debt recovery.
Investors had since September 2013 been paying a minimum of Sh10,000 or 0.1 percent of project cost without an upper limit, making it costlier for big-ticket projects.
Official data shows the construction sector expanded by 6.6 percent in 2021 compared to a growth of 10.1 percent in 2020, mainly supported by continuous public investment in road infrastructure.
Some of the major road construction activities that boosted the performance of the sector are the Nairobi Expressway and the rehabilitation of the Longonot-Malaba railway line.
The sector’s performance, albeit not as strong as in 2020, was shown by a 23.4 percent increase in cement consumption from 7.3 million tonnes in 2020 to 9.09 million in 2021.
The property market has been struggling in the past few years due to difficulties in selling new units amid an oversupply of both commercial and residential spaces.
The depressed property market was worsened in 2020 by job losses due to the Covid-19 pandemic, which led to declined demand and increased auctions of homes linked to loan defaults.
Last year, insurance group Britam said it would stop new property developments as part of its five-year strategy to 2025 and instead focus on property management to reduce its exposure to financial risks and improve performance.