The
process of buying land or a house in Kenya takes an average of three months
although some transactions may take longer while others can be much quicker.
The process of finding and buying land can be quite the daunting task and we
want to detail it for you. This guide contains the ultimate tips to consider
when buying land or houses in Kenya. We shall be providing a step by step
process to owning property in Kenya and hope that this will be a checklist and
a guide that makes the land buying process less intimidating.
As
a background. the real estate industry in Kenya is governed by the Estate
Agents Act Cap. 533 of the Laws of Kenya. The Act provides for the process of
transfer of property and the registration, professional conduct and
remuneration of persons who participate in the selling, purchasing or letting
of land and buildings.
Top
five Factors to Consider before Investing in Property.
Many
people invest in real estate because the general trend of property is that it
increases in value. As such, your returns are guaranteed over some time. It is
important for you to understand these factors before you invest in real estate.
1.
Purpose
Before
purchasing either land or a building, the first factor is to determine why you
are making the purchase. For land, consider factors like: - Is it for immediate
settlement, immediate construction or for speculation purposes. Are you
purchasing for your use or you would like to resell? The same case
applies to purchase of a house. Will it be a house for you to live in or a
house that you may want to rent out?
2.
Type
Once
the purpose is determined, you then must consider if you are making a
commercial, residential, agricultural or an industrial property.
Commercial properties are generally used as outlets for sale and purchase
of goods or services or for use as offices. Commercial properties are usually
more expensive than residential property and attract different taxes and this
impacts on your budget. For houses, additionally consider whether you need to
purchase an apartment, townhouse, bungalow or a house with a separate servant
quarter.
3.
Budget
The
budget you have available determines the locations you can afford including the
size of either land or building. The budget should be enough to not only cover
the purchase price, but sufficient enough to cover taxes, agents commissions
and the legal costs of conveyancing.
4.
Location
Location
is usually the biggest determinant of price. If you are purchasing hoping for
returns from increased sale price, then you would need to select property in an
area that is experiencing or is expected to have a high price appreciation. If
you are purchasing a house to live in, then you must consider a location that
is easy to commute, is secure, have social amenities and factors like schools
and availability of transport.
5.
Property Tenure
In
Kenya, there are two main forms of property tenure. These are free hold and
leasehold interest. Freehold property gives the owner absolute ownership of the
property and does not attract ground rent. Leasehold property confers to
the owner a limited period to own the property which can be extended. As
evidence of ownership, the government issues buyers with a Certificate of Title
for freehold and a Certificate of lease for leasehold titles as a primary
evidence of property ownership. Article 65 of the Kenyan Constitution limits
foreigners to holding only leasehold titles for a maximum of 99 years but
permits future renewals on condition that the subject property held under that
title is economically active and it is not required for public use purposes. Any
title that is on freehold that is purchased by a foreigner, a company not
wholly owned by Kenyans or property held in trust whose beneficiary is not
Kenyan changes to leasehold.
6.
The current condition of the real estate market in Kenya
Conditions
in the property market change from time to time. If you are selling a house,
high property prices are a good condition. On the other hand, if the property
prices are low, it is a good time to buy and a bad one to sell. Thus, before
you invest in some real estate in Kenya, perform some research to find out the
prevailing market conditions.
The
Key Steps in the Process of Buying Land in Kenya
The
steps below are the definitive steps to follow when you are finally ready to
make a purchase. We have through our experience identified and itemized the
steps needed to buy a home or land in Kenya. These steps identify the process
followed to buy land which is the same as the process of buying a house in
Kenya. Whether you are buying land from an individual or buying land in
installments from a company, consider the steps below.
Step
1. Land Identification
After
you have decided of the size, location, budget, purpose and the property tenure
needed, you then need to identify the land or house you need to purchase. Most
purchasers start their search online by visiting listing websites. You could
also reach out to any reputable real estate agents that you may know. If you
know any friends who have purchased real estate property, you may reach out to
them for advice and guidance. Once you have been provided or seen proposals
that meet your criteria, you then plan to conduct a physical visit to the land
or house to confirm the basic details. When you visit the land, you should ask
neighbours questions about the seller or history of the land. s well as whether
there are disputes over the land. Neighbours are well placed to alert you on
any existing boundary issues, family squabbles, if the land has been subject to
multiple sales, if the land has been set aside for public utilities or such
valuable information.
At
this time, you may want to verify that the agent is authorized to deal with the
property if you haven't met the owner. Such agents will be having an
authority to sell letter from the owner. In case its needed, as a buyer, you
may make a formal expression of interest/ offer subject to contract detailing a
few details like price, terms of payment and advocate details. If the offer is
accepted by the seller, then the agent prepares a Letter of Offer (LOO)
confirming the salient details of the agreed transaction. This is then signed
and acts to formally instruct the legal teams of both parties but is not
legally binging until an agreement is in place.
Step
2: Conduct a search in the land's registry
If
you are satisfied with the price, location and the other factors identified
above, you then request details of the land and details of the owner so that
you can conduct a search for the land's records in the registry at the
county office. The copy of the title will be used to conduct a search of
the land at the lands office while the copy of the national identity card will
be used to verify the identity of the seller at Registration of Persons Bureau.
The search is needed to ascertain ownership, check if the property has any
encumbrances and confirm if there are any accrued rates. The cost of these
checks will vary from county to county. Search results will help you confirm
the current ownership, location, size and any caveats attached to the land.
This search process will normally take three days.
While
at the land registry, purchase for a nominal fee a copy of the land map. You
will need 2 maps from the ministry of land or a local surveyor. One map is an
overview of the land and adjacent plots while the other is drawn to scale.
With the two maps, you then engage a surveyor to verify the dimensions of
the land and confirm if the land beacons are there and whether these beacons
are correctly placed.
Step
3: Preparation of offers and price negotiation
Once
you have finished your search and verification process and are satisfied with
the search results, you can then engage a lawyer to prepare an offer. The
lawyer will then prepare an offer letter detailing the terms of sale. The sale
agreement is normally drafted by the seller's advocate and presented to
the buyer's advocate for review and approval. Please ensure that
all key details discussed orally are included in the contract. The seller might
ask you to pay some deposit, but it advisable to wait till you get clearance
from the Land Control Board. If a deposit is agreed on, you may then deposit
the agreed upon amount to the seller's advocate's account.
Step
4: Clearance for the Land Control Board
The
Land Control Board is comprised of county commissioners and area elders who
hold forums to ensure that land transfers in the area are transparent and that
the land is clean and not either communal land or subject to a land tussle.
Most land boards meet monthly, but an expedited review can always be arranged
for an additional cost.
Once
you have been cleared by the LCB, depending on the land tenure regime, the land
rates and rent if unpaid will need to be paid so that you can obtain the
Clearance Certificates. Once this is done, you are now free to make the
payment for the land you are purchasing and get signed transfer forms from your
seller.
Upon
receipt of the complete documents from the seller, you are obligated, in
exchange of the documents, to pay to the seller the entire balance against the
land through his advocates to finalize the registration of the documents.
You
should then take these documents alongside the sale agreement document,
clearance from LCB, land rates clearance from the county, land search
documents, your national ID, KRA Pin, 3 passport photos and the old title deed
to the ministry of land.
Step
5: Transfer of Ownership
You
should use the valuation form to apply for valuation by the government valuer.
The Government Valuer will visit the property to ascertain the value of the
property for stamp duty assessment after which you then pay this amount to the
Kenya Revenue Authority. To pay the stamp duty, you will require both the
transferor and transferee PIN. Depending on the value of the property, a
Capital Gains Tax may apply. It is your responsibility to pay the stamp
duty.
Stamp
Duty is charged on the property value or the purchase price agreed upon;
whichever is higher and is:
4%
for land/property within a municipality
2%
for agricultural land or property outside a municipality
1%
if a property is registered as a company and transfer is by way of shares
rather than title Legal fees:
VAT
is payable on the acquisition of trading commercial property. The current
prevailing rate is 16% of the purchase price. This is in addition to paying the
Stamp Duty.
Buyers
are generally responsible for the cost of registration of titles in their
name(s). Once the registration process is complete, the legal ownership of the
land will have legally changed hands.
The
certificate of title issued by the Registrar upon registration, or to a
purchaser of land upon a Transfer by the seller is taken by all courts a
evidence that the person named as the proprietor of the land is the absolute
owner.
Step 6: Post purchase activity
Each
party pays for their own legal fees based on a percentage of the purchase price
on a scale stipulated in the Advocates Remuneration Amendment Order, 2014. The
law also provides that agents must be paid the agreed service fee/commission if
they successfully introduce a buyer to the seller or acquire a property for the
buyer. The agent is paid by the party who instructs them; either by the seller
who instructs the agent to market their property or the buyer who instructs the
agent for a property acquisition. The fee is on a scale capped at a maximum of
3% of the property's value.
It
is important to follow up after one week and conduct a search to ensure that
the property details at the ministry of lands are now showing you as the new
owner. Once you confirm the details, you can now consider fencing the land and
notifying neighbours of the change in ownership. Fencing will restrict
encroachment on the land.
I
hope the above step by step instructions help you in purchasing your next
property. In case you have any questions, do not hesitate to reach out to your
real estate agent, advocate or let us know. You may also comment below, and
other community members will be on hand to offer you their thoughts.
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