State to control rents in fresh property Bill

The State will control commercial and residential rents if Parliament adopts a proposed law that seeks to protect tenants from sharp building leasing costs.

The government-backed Landlord and Tenant Bill of 2021 demands that rent increase should not exceed the annual average inflation rate for the preceding year.

This means rent increase this year will be capped at 5.2 percent—the average 2020 inflation—if the Bill becomes law.

Landlords have been given a window to breach the average inflation rate in case of sharp increases in rates paid counties and other State agencies or when they introduce an additional service to clients like security, garbage collection or home internet.

Building owners can also increase rent above the cost of living measure if they make necessary upgrades to homes and office blocks.

This marks the first attempt for the State to regulate rent in an economy that has resisted price controls in favour of economic liberalisation.

Rents surge

Housing has been one of Kenya’s fastest growing sectors over the past decade, fuelled by heavy demand and returns that easily outpaced those of equities and government securities.

This has seen rents surge with HassConsult, a real estate firm monitoring property price index, saying asking rents in the city have surged nearly threefold from 2007.

National Assembly Majority Leader, Amos Kimunya, says the government-backed Bill seeks to protect tenants while offering returns to real estate investors.

"The Bill seeks to introduce a legal framework which balances the interests of landlords and tenants in a free market economy by ensuring that landlords earn reasonable income from their investment in housing and also protects the tenant," said the Bill tabled in Parliament by Mr Kimunya.

The Bill also provides for cuts on rents when landlords withdraw some of the services that had prompted earlier increases in building lease costs.

Building owners will be allowed to increase rent once a year for residential houses and once in two years for commercial premises, lowering the cost of doing business.

Those in breach of the proposed rent regulations risk a fine of Sh20,000 or an undisclosed period in jail.

Kenya has preferred to let market forces control the cost of basic commodities despite the presence of a law that provides for capping of prices.

In 2011, Kenya signed into law a bill that allowed the return to price controls of essential commodities, after the practice was abandoned in the 1990s in favour of economic liberalisation.

The law allows the Treasury Cabinet Secretary to declare certain goods to be essential commodities and determine their maximum prices through an order in the Kenya Gazette.

This order has only been issued once in 2017 when the State capped the two-kilo packet of maize flour at Sh90 after the cost of the commodity more than doubled to breach Sh150.

In November 2019, the country removed a cap on commercial lending rates imposed in 2016, which had been blamed for curbing private sector lending growth.

But Kenya has been setting maximum price caps on fuel monthly since 2010.

Now, the State reckons there is a need to regulate rents.

Many Nairobi residents are ditching rented homes in city estates in favour of cheaper ones in the suburbs as the cost of living soars.

HassConsult reckons that the surge in rents has pushed many to far-flung areas.

They have relocated to satellite towns like Ngong, Kitengela, Rongai, Ruai and Ruiru, which have also not been spared rising rents due to the influx of new customers.

This fuelled a boom in land prices, which have increased nearly four-fold in Nairobi and surrounding satellite towns like Kiambu, Ongata Rongai and Kitengela.

The feverish rise in house and land prices has led to a bubble, setting the stage for multi-billion shilling loan defaults from property developers who had pegged their bets on Kenya’s real estate.

Rents were little affected by Covid-19 pandemic, which cut home and land prices in the wake of layoffs, pay cuts and business shutdowns.

Majority of landlords have snubbed State calls to reduce rent for workers hit by the effects of the pandemic.

"Kenya has weird landlords who would rather retain empty units than drop prices to attract or retain tenants," said Sakina Hassanali, head of property development consulting and research at HassConsult.

"That is the reason rental units continue to attract high prices as tenants are looking at units they can afford."