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Part II: Challenges Facing Land Investment in Kenya

ON THE SPOTLIGHT

Land investments in Kenya have truly transformed places that were previously desolate and had previously been thought to be inhabitable. For example, the land upon which Sultan Palace Beach Retreat has been built was once a derelict quarry which had no hope whatsoever in being productive again. However, all that changed when Sultan Palace Development Ltd reclaimed the abandoned quarry and built an amazing five-star resort giving it a new lease of life in the process. From Kikambala in Kilifi County, this is a just one of the many makeovers happening across the country leading to the creation of new towns and trading centres that ultimately establishes viable alternative economic hubs poised for growth.

Indeed land investment has the potential for great returns if done properly and thus it has become a lucrative investment opportunity for many. However, as with any good thing, land investment in Kenya is dogged by various challenges. For potential land investors, knowledge of these challenges, as well as the dynamics around it, will be helpful in making sound investment decisions. They are:

Corruption
Corruption is a big headache that many government institutions are grappling with, including the ministry of lands as well as the National Lands Commission. From forgery, missing files, land grabbing, illegal allocation to double land registration, these issues have stained the country’s land sector.

Kenya’s land sector was ranked number two in the East African Bribery Index 2014, with a score of 55 on an aggregate index of 0 to 100, with a score of 100 being the worst score. (Transparency International Kenya Adili issue June/July 2015).

Many Kenyans are losing and have lost their land due to fraudsters taking advantage of illiterate landowners and loopholes in land policies. In 2017, Mr Cesare Mbaria, the Director of Survey said that the economy loses Kshs. 60 Billion as a result of such scams. Such practices tend to discourage potential investors, who decide to invest elsewhere. This affects the country’s economy.

Weak Systems in Government
Malpractices conducted by unscrupulous individuals, therefore, go undetected despite many reforms, such as the digitization of land records in the ministry’s registries. There has been a slow adoption of technology at the lands ministry therefore not all systems have been integrated making it vulnerable to manipulation.

This has made services inefficient and uncoordinated enabling land cartels to thrive. Because of this, many have lost their land to land grabbing or have bought nonexistent plots of land.

Investing in land, therefore, is a long and tedious process; at the same time, it has become filled with mistrust and scepticism for both buyers and sellers. For an investor, such an environment is discouraging and risky.

Mr. Gitonga, a director at Kenya Property Developers Association(KAPD) once remarked: “It is painful for an aspiring developer to invest millions of shillings in a piece of land, only to spend years in court arguing about the validity of its title deed,”

Law of Adverse Possession
It is a practice of most investors to buy land then wait for its value to appreciate. During this period, the land is usually left idle, making it easy for anyone to settle in. Without proper fencing, a landowner risks losing their land. This is due to the law of Adverse Possession.

Found in the Limitations of Actions Act, the Law of Adverse Possession prevents a landowner from the recovery of ownership of a piece of land from squatters after a period of twelve years. Therefore, a landowner can lose possession of land to people who have been living, without the owner’s consent on that land for more than 12 years.

Landowners who buy land and then wait for its price to appreciate, often leave their land unattended. Land being a factor of production should not be left unattended. Instead, as the landowner waits for price appreciation, the piece of land can be used for other income generating activities.

Land Prices based on Speculation
Land prices in Kenya’s urban areas are rising at a higher rate that cannot be sustained by the economy. Evidence of this is seen in land prices in the Nairobi. Land prices in Nairobi have continued to increase and eventually it has become too high for most investors, Kshs 634 million for an acre of land in CBD and Kshs 510 million in Upper Hill.

Due to price speculation, investment decisions are not made based on facts and most investors only follow the crowd. An example of this can be seen in Kitengela where back in 2008, an acre of land was Kshs 250,000. In just 4 years in 2012, the price increased to Kshs 1.2 million, bringing a great profit for landowners then. Many people bought up land in Kitengela and surrounding areas hoping to experience such profits. But unlike the previous years, the prices in just 5 years in 2017 rose only by Kshs 300,000.

According to Mr. Waweru Kariuki, author of ABC of real estate investment in Kenya, he says that buying a piece of land with an appreciation rate slower than the rate of inflation leads to losses even if the land were to be sold for a profit. Many people who go into land investment buy land and end up making losses on their land due to this unlimited speculation.

Infrastructure Development
Presence of electricity, access roads, water and communication networks help attract potential land investors. Such infrastructure help in reducing construction costs for developers, improve accessibility and lead to the economic development of surrounding areas. Although the government has made significant strides in infrastructure development, there is still a shortage of serviced land in the country.

With the absence of such facilities, land developers have to install such facilities at their own expense. This makes it expensive for them. That expense is shouldered by potential owners of those housing units, buying them at high rates.

Investing in land in such areas, therefore, becomes expensive. Land in such areas becomes neglected as seen with a huge demand for land in urban areas but those in rural areas neglected and with less development.

The above challenges elucidated above may not be a comprehensive but they provide pointers on areas that those looking forward to investing in Kenyan land should be cognizant. In part three, we will look at factors likely to influence land investment in the future. Make sure you subscribe to our newsletter so as not to miss out on insights about the future of land investments.

AUTHOR´S NOTE:

The views expressed here are of the author and does not necessarily represent position of Sultan Palace Development Ltd and as such does not warranty any particulars. Click here to read our Terms & Conditions.