Find ways of reducing permit fees, CS tells construction body

Ms Phyllis Kandie, the Cabinet secretary for East African Affairs, Commerce and Tourism, joins the chairman of AVIC International, Mr Wu Guangquan (left), the Chinese ambassador to Kenya (on her right) and Nairobi Governor Evans Kidero (extreme right) at the launch of the company’s African headquarters, to be built in Westlands, Nairobi. The company paid Sh97 million in approval fees. FILE PHOTO | NATION MEDIA GROUP

What you need to know:

  • Nema imposes a minimum charge of Sh10,000 or 0.1 per cent of the project cost for environmental impact assessment.

  • Nairobi, which accounts for most of the real estate activity in the country, also raised its permit fees to 1.25 per cent of the total construction cost in 2013.

  • Before the review, the county had been charging between 0.001 per cent and 0.006 per cent of the cost of construction.

Acting lands and housing Cabinet secretary Fred Matiang’i has asked the National Construction Authority (NCA) to come up with a proposal on how to reduce the amounts developers pay in permit fees.

The minister said developers are saddled with too many government fees, adding that by the time one puts up a building, they’ve spent a considerable sum on permits alone.

“We are not going to increase the fees. We want to reduce the fees that we are asking investors in the construction sector to pay to get permits. I need a proposal from you on how we are going to reduce the fees,” he told the NCA board. “It’s not going to be a case of increasing the percentages. We want investors to pay nominal facilitative fees. We did not form the National Construction Authority so that we could make money.”

In June last year, then Lands CS Charity Ngilu, through a legal notice dated June 3, said that developers whose projects exceeded Sh5 million would pay a construction levy of 0.5 per cent of the value of the contract to the NCA.

The construction levy came on the back of increases in permit fees by the National Environment Management Authority (Nema) and counties like Nairobi.

Nema imposes a minimum charge of Sh10,000 or 0.1 per cent of the project cost for environmental impact assessment.

Nairobi, which accounts for most of the real estate activity in the country, also raised its permit fees to 1.25 per cent of the total construction cost in 2013.

Before the review, the county had been charging between 0.001 per cent and 0.006 per cent of the cost of construction.

The upward review of permit fees has seen them  become a key revenue source for Nairobi. In the year ending June 2015, the county collected Sh1.3 billion, a Sh500 million jump from the previous year.

The multiple fees  mean that in places like Nairobi, nearly two per cent of construction costs are attributable to permit fees. For a Sh100 million property, that means nearly Sh2 million.

Last month, Chinese corporate giant AVIC paid Sh97 million in approval fees to City Hall for the construction of its African headquarters in Westlands, highlighting the lucrative nature of the permit fees.

The fees  impact on the final cost or rent for units, both commercial and residential,  as developers look to recover the expenses  that did not go into  materials or labour. NCA’s construction levy will also push up the cost of other infrastructure projects like roads, railways  and ports, which are funded by taxpayers.

Mr Matiang’i also urged for the establishment of a one-stop shop for all the payments to make it easier for investors.

“This is where you have one centre where you pay the fees to the National Construction Authority, you do the Nema, you do the county government and then from there they can distribute the resources among the different entities,” Mr Steve Oundo, the NCA chairman, said.