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Real estate regulation Bill can build sector with reviews, adjustments

By Anne Kinyanjui and Maureen Nyakinyua

In May 2023, the Senator of Trans Nzoia County, Senator Allan Chesang sponsored the Real Estate Regulation Bill (Bill), which is currently under consideration by Senate. The Bill draws heavily from the Indian Real Estate (Regulation and Development) Act of 2016 (RERA), which regulates India’s real estate and property market. Kenya’s real estate market is estimated by Statista to be worth USD 7.91 Billion is dwarfed in comparison to global giants like India’s USD 265.18 Billion market. While the two countries’ real estate sectors differ significantly in size, they seem to share common concerns: the need for a specialised legal framework to protect real estate consumers.

Real estate consumers in Kenya have faced a myriad of challenges such as unavailability of complete and reliable information in respect of the property they are dealing with; defective titles; fraud and lack of accountability from some developers on project delivery timelines; mismanagement and diversion of funds collected on account of purchase price among other challenges.

The debate on whether real estate development and built sector in Kenya should be regulated is not new and the sector is also no stranger to regulation. Multiple laws already govern aspects such as access, ownership, use and administration of land and the conduct of real estate professionals. However, despite the sector being heavily regulated, there has been a glaring gap: the absence of a tailor-made consumer protection legal framework to safeguard real buyers beyond the protections provided in the more ‘general’ Consumer Protection Act No. 46 of 2012.

The most recent efforts in this regard were initiated in July 2020 when the then Principal Secretary for the State Department for Housing and Urban Development’s special committee recommended the establishment of a real estate development regulatory board (REDRB) through an executive order subject to the approval of Cabinet. REDRB had been recommended to among other things regulate and promote the Kenyan real estate sector, ensure transparency in transactions of real estate projects in an efficient manner, safeguard the interests of real estate consumers and introduce a customer-friendly system. However, this recommendation has not been implemented to date.

Considering that all prior efforts have been piecemeal attempts at addressing different aspects of the sector, the Bill proposes the first wholesome approach to regulating real estate projects and agents. The Bill proposes the establishment of a Real Estate Board (REB) to among other things regulate and register real estate agents and real estate projects above a certain size as defined under the Bill.

Some noteworthy features of the Bill include imposition of certain mandatory duties and obligations on developers such as prohibition of advertisements or sale of any real estate projects without prior registration with REB, restrictions to variation of the approved building plans without the prior written consent of purchasers and obtaining prior written consent of at least two thirds of the purchasers prior to the transfer of a project to a third party. The Bill further proposes an unusually lengthy defects and liability period (DLP) of 5 years from the date of the project delivery, within which period a developer will be liable to rectify any defects notified by a unit owner no later than 30 days of receiving a complaint. This is a significant shift from the usual 6 months market standard DLP granted by developers to purchasers.  

Perhaps most innovative, is the proposed control of investor and development funds. The Bill proposes that developers be required to establish an escrow account for each project into which 70% of the amounts realised from the sale of a project will be deposited to cover the cost of construction and the land. The amount in escrow would be withdrawn against certificates certified by the project engineer, architect and an accountant confirming that the withdrawal is proportionate to the completion of the project.  A quantity surveyor would be better placed to give such confirmation instead of an accountant.

The Bill also proposes rights and duties of purchasers such as the right of purchasers to be supplied with information such as the approved project plans, the expected project completion date among other information.

While the Bill is consumer-centric, its suitability to the Kenyan real estate sector is questionable and may require a great deal of adjustments before it is published into law. The introduction of RERA in India is considered to have led to increase in prices by developers and agents as a response to the increase in legal risks and compliance cost. This raises concerns on whether adopting a law similar to RERA would serve Kenya better than a novel indigenous law adopted to suit Kenya’s unique market dynamics which include a significant informal sector.

The article was featured in the Business Daily on 5 December 2023 and can be accessed here.