New valuation fees push up the cost of land and homes | Land Portal

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Date of publication: 
August 2011
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The cost of buying land and homes is set to rise significantly as the market factors in new valuation charges that have more than doubled for most asset classes.

Lands minister James Orengo introduced the new charges through an amendment to the forms and fees section of the Valuers Act, paving the way for their application in the property market beginning this month.

Valuation fees for certain classes of land or homes have increased by up to 400 per cent, piling upward pressure on sale prices.

The new charges that were gazetted last month show that the cost of valuing a rental property, one of the key determinants of rental charges, has more than doubled in what could trigger a wave of rent increments in major towns countrywide.

Mortgage borrowers, property owners, buyers and the government are expected to come under increased pricing pressure in the first few months of coming into force of the new fees.

Owners of rental houses in urban locations with a market value of more than Sh10 million will, for instance, part with at least Sh520,000 up from Sh254,000 or a 104 per cent increment. Those valuing urban or agricultural property worth Sh10 million for purposes of records, sale or financial reporting are now required to part with Sh40,000 up from Sh29,500 — a 36 per cent rise. This charge will also apply for any valuations done for purposes of determining land rates paid to local authorities.

The cost of valuing furniture, machinery, plant and vehicles is also up by at least 100 per cent. Buyers of furniture that is worth more than Sh2 million will part with Sh20,000, — a 110 per cent increment from the previous fee of Sh9,500.

Minimum consultation fees charged by the valuers has also been raised by 400 per cent from Sh1,000 per hour to Sh5,000 per hour while the minimum valuation fees for any valuation has been fixed at Sh15,000 up from Sh4,000.

The taxpayer is also expected to feel the heat from the new charges arising from the near doubling of the cost of valuing land for compulsory acquisition.

State agencies or institutions acquiring private land under this rule will pay Sh80,000 instead of Sh52,000 if the value of the property is worth more than Sh10 million. Higher value property attracts higher valuation charges. On Wednesday, the Institute of Surveyors of Kenya (ISK) supported the new charges pointing to runaway inflation that has increased the valuers’ cost of service delivery.

“The new fees are necessary to safeguard the quality of professional services we offer our clients,” said ISK chairman Collins Kowuor. “It has become untenable to continue charging fees that were set 16 years ago.”

ISK said the fee increments were also intended to capture the steep rise in the cost of doing business in Kenya and appreciation of property values since the fees were last reviewed.

Inflation rose to 15.53 per cent in July from 14.49 per cent in June according to the Kenya National Bureau of Statistics (KNBS).

The valuers said property prices had risen significantly in recent years and that the revised charges reflect only a small portion of the market changes.

But Mr Stephen Mutoro, the CEO at the Consumer Federation of Kenya (Cofek), opposed the new charges on grounds that they were disproportionate to the rate of inflation.

“These increments are way above the inflation rate and in any case they are unlikely to fall with the drop in the rate of inflation,” he said. 

Valuation fees are part of the initial charges that buyers of land or homes have to bear to kick-start the sale process. The list includes legal fees charged at 1.5 per cent of the total cost, stump duty charged at four per cent, disbursement and registration fees.

Mortgage lenders at Equity Bank said the new charges risk slowing down the uptake of home loans because potential borrowers have to raise more money before they take credit.

Valuers said the fees were last increased in 1995 and most of associated costs such as legal fees have since risen by large margins.

The volume of land and building transactions has been growing at double digit rate in the past five years significantly growing the market for professionals such as valuers, structural engineers and lawyers.

The value of building plans approved by the City Council in the past 12 months more than doubled, according to the Kenya National Bureau of Statistics, pointing to increased activity in the property market and increased earnings for industry players, among them surveyors and valuers.

Returns from the real estate market have beat all asset classes in the past five years – a development that has been attributed to rapid expansion of the middle class and an acute supply shortage in the homes segment.

Property prices rose 3.5 times in the past 10 years compared to share prices appreciation rate of 2.4 times during the same period, according to CFC Financial Services.

More recently, however, the combination of highly priced land and building materials continued to push asking prices up despite signs that buyers were getting weary of the pricing bubble. Though property dealers have welcomed the latest price increments saying it would lead to improvement of services from the valuers, there is fear that adding costs into a market that has only recently showed signs of weariness could only stagnate growth. 

High cost of valuation is particularly seen to bear the risk of slowing down the shift in housing development activity to the low end of the homes market where supply shortage remains acute and growth potential huge.

On Wednesday, the Kenya Valuers and Real Estate Agents, an industry lobby, expressed concern that high official charges could lead to price undercutting as the service providers fight for clients in a price-sensitive market.

The cost of doing business in Kenya has been rising steadily in the past six years buoyed by high property, fuel and commodity prices.

Increment in valuation fees is particularly significant because of its potential to add impetus to the rate of inflation that is already in the double digit zone.

The 100 per cent rise in valuation fees for rental houses is, for instance, expected to spark a new wave of rents increments in Nairobi and other major towns with huge ramifications on the rate of inflation.

Under the new method of computing inflation, the cost of housing — which is lumped together with energy and fuel — accounts for 18.3 per cent of the consumer price index, making any changes in the segment significant to overall cost of living.

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