Why Kenyans are paying more than they should for land

Are you looking to buy land in Nairobi? Do you have some Sh390 million that you would want to invest in a home in a leafy suburb such as Lavington and, perhaps, negotiations are at an advanced stage?

Lihnari Peninsula island

Well, you might want to stop right there because for that money, you can buy yourself one of the dozens of luxurious private islands up for sale in Greece and still have some change for relocation.

On July 8, a Kenyan on Twitter caused a storm when he shared two screenshots apparently to show the disparity between land prices in Kenya and those in Greece, with a property in a Kenyan suburb fetching more, despite the two countries being miles apart in terms of economic development.

On one of the screenshot showed a one-acre property on sale in Lavington’s Mzima Springs going for Sh390 million while the other screenshot captured from Business Insider, an American financial and business news website, displayed a strikingly beautiful picture of the sumptuous Lihnari Peninsula island on sale in Greece for €3 million (Sh349 million), standing in stark contrast with the Lavington property.

Responding to the post, one Twitter user said he was convinced that he was in the wrong kind of business, saying that all he needed was to sell just a few properties in Lavington to earn enough money to last him a lifetime. “I am switching to become a real estate agent; all I need is to sell five acres in Lavington,” he wrote.

A majority of those who shared their views questioned the rationale behind the pricing, with some expressing shock that a piece of real estate in the first world country would retail at a much lower price.

As the debate raged on and the post got shared widely, including on other social platforms, very pertinent questions were emerging. For instance, is it true that land in Nairobi is more expensive that other world cities in more developed countries? If this is the case, what gives? Why should it raise eyebrows— isn’t that normal business practice where forces of demand and supply are left to dictate price? Lastly, should high land prices be cause for concern for Kenyans and what will it take to tame the runaway land prices in the country?

Welcome to paradise for Sh10 million

In a bid to get some answers to these questions, DN2 spoke to a group of real estate insiders, a majority of them in the business of buying and selling land in the country.

Most of the real estate experts we spoke to agreed that land prices in Kenya are exorbitantly high. To demonstrate this, Mr Francis Gichuhi, an architect and founder of architectural firm A4 Architects, whips his phone out of pocket and logs in to a leading real estate website in Belgium, where he says properties sell like hot cake. A few seconds later, he comes across a half acre piece of land located in the City of Stekene, Belgium. According to description given on the website, the piece of land is located a walking distance from the bus stop and from the photographs provided the neighbourhood has a tarmac road, electricity and the lush greenery points to a leafy suburb.

At the equivalent of Sh5 million for a property surrounded by public amenities, there is no doubt that this parcel of land is selling for cheap. Asked what a similar product would go for in Kenya the architect says, “That would be a Sh10 million acre land, which is in the hinterland of Kiserian, very far from tarmac, no water, no electricity, no security!”

Interestingly, it is not only in Europe where properties seem to be selling for a song as compared to local prices. In California, United States, for instance, a property advertisement on a popular listing website welcomes one to paradise, literally, and for Sh10 million only.

The property in question is a 1.06-acre piece of land located just 20 minutes from Redwood City, Half Moon Bay. For a heavily wooded piece of land located in an area described by Wikipedia as ‘home to many horses and is among the wealthiest communities in the United States’, the websites indicates: “You can build your dream home or enjoy the land in its natural condition.”

The property comes with utilities such as electricity and water, sewer, septic, paved roads, internet and TV services.

According to the realtors, this property is nowhere near what a similar amount would get you in a city such as Nairobi, complete with similar amenities.

Poor land laws

Why then, one would wonder, is land so expensive in Kenya?

Mr Gichuhi lays the blame squarely on poor land laws, which he says allows for hoarding of idle land thus leading to demand outstripping supply.

“New York city found itself in a similar situation in the 1800s, luckily meritocracy took over and Henry George's ideas on taxing the value of land were incorporated into USA land policy. In the first world countries, high land tax ensures all land is utilised to raise money for the tax,” he says. He adds that Kenya needs to borrow from countries where laws have helped curb the menace otherwise, land prices will continue to rise exponentially to levels seen in Vietnam and many other countries.

For Peter Kimeu, a land economist who works in Nairobi as a valuer and real estate consultant, the continued land subdivision does not help the situation and is partly to blame for the rising land prices. If the ongoing subdivision of agricultural land continues, Mr Kimeu fears Kenya will soon be a net importer of meat and grain— two products the country can comfortably produce— in the next few years.

But perhaps the elephant in the room when it comes to hiking land prices has got to be corruption. Mr Mesora Githinji, a Nairobi-based real estate agent and CEO of Technovate Ventures says a lot of dirty money is finding its way into real estate, creating a situation where a lot of money is chasing limited resources. “Since banking the money is difficult, corrupt government officials have resulted to buying land and building rentals with cash,” he says.

Hurt potential growth

Additionally, the fact that different government agencies have in the past differed on valuation of parcels of land located in the same area, Mr Njunga Hehu, an investment consultant and analyst says that that in itself “tell us the prices are not supported by any economic parametres.”

And it is not only land meant for residential or commercial use whose prices have shot up, asking price for land meant for agriculture use, the realtors say, has gone up tremendously, threatening the country’s food security, which is one of the government’s agenda.

“Land is a factor of production with no guarantee for profitable earnings. When we allow such prohibitive pricing, we hinder production and hurt our potential for growth. Nowadays agricultural land is being priced in the highs of Sh10 million per acre. Which agricultural activity can give returns to justify such exorbitant spending on land alone?” wonders Mr John Kihara, a quantity surveyor.

When land prices go high, he says, the buck stops with the policy makers to come up with ways of mitigating this trend. For instance, in April last year, the Ministry of Lands announced the introduction of a policy that would allow taxation of idle land. The aim? To provide a package of incentives to encourage productive and sustainable use of land and disincentives for keeping idle land for speculation. But more than a year later, the policy has yet to come into effect. And these realtors are not surprised.

Good proposals

“There are good proposals like this all over. But their enactment and implementation depends on the willingness of the political class and powers that be. This category of people has a huge interest in land hoarding as that is the main outlet of corruption proceeds,” says Mr Kihara.

According to the real estate insiders, the country finds itself in a Catch-22 situation in that those at the helm of policy making are also the owners of large tracts of land in the country, giving rise to conflict of interest. But Mr Gichuhi is of the opinion that that is just partly the reason.

“While conflict of interest is part of the reason, very little seem to be happening when it comes to taming runaway land prices, it is also partly due to lack of meritocracy. This is a situation where policy makers are selected and elected without merit. Given, most large land owners in Kenya are not locals, most are international or colonial-era land owners,” he says.

Still, hundreds of acres of land in the country side lie under-utilised and proponents of Idle Land Tax argue that such a levy will push landowners to immediately find economic uses for their unused properties.

“To me, it’s that incentive that will primarily impact economic growth and development in rural areas; the earnings from the idle-land tax is only secondary. I do also concur that legislation of that kind may also improve the efficiency of land markets,” offers Bernad Itibi, the CEO of Countywise Enterprises, a Westlands-based real estate development and agency firm.

Mr Gichuhi agrees with him , saying productivity will increase due to the need for land owners to raise the tax, leading to lower inflation and a better economy for all. Some of the realtors said Kenya needs to borrow a leaf from neighbouring countries on land management and how to ensure land is to put to good use. Ethiopia was cited as a case in point.

Poverty levels

“In an effort to introduce large-scale commercial farming to the country, the government is offering up vast chunks of fertile farmland to local and foreign investors at almost giveaway rates. You only pay little fee for land rent as long as you can show you have capital to invest in agriculture. This will bring real development there,” says Mr Kihara, adding that many potential investors in Kenya are put off by prohibitive land prices.

To put it in figures, by 2013, about 3 million hectares of idle land was estimated to have been allotted in Ethiopia, which is equivalent to more than one fifth of the land then under cultivation in that country.

According to Mr Gichuhi, the existence of better land laws is responsible for reduced poverty levels in Ethiopia, which stood at 27.3 per cent in 2015 according to official figures against Kenya’s 36.1 per cent.

The reason rising land prices should worry Kenyans who dream of owning land or hope to build a roof over their heads is that with population growth, land is getting scarcer and demand for it is rising in tandem.

But for success to be realised and for there to be a glimpse of hope that the country will realise favourable land prices, Mr Githinji, argues that the country should be serious about the fight against corruption.