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Why building in Nairobi is costly

The increase in land rates and construction permits by Nairobi County is threatening to derail construction as contractors decry the rising costs, a new report reveals.

Last year, City Hall introduced new land rates and construction permit fees.

A report by the Kenya Property Development Association (KPDA) and HassConsult, dubbed “The State Of Development Report” noted that the increased levies were hurting developers and would, in the long run, slow down construction in the city.

Slow pace

“We are staring at a situation where these new levies will hurt the industry hence slow down the pace of construction,” said KPDA chief executive Robyn Emerson.

According to her, the construction permit fee has been increased by a multiple of between 200 and 1,250 times, from 0.001 to 0.006 per cent of the cost of construction to 1.25 per cent. 

“The current rates mean that property developers are paying 1.25 per cent of the cost of construction from between 0.001 and 0.006 per cent. These policy actions are not investment friendly and we are suggesting that they be restructured according to the property, the development size and location,” she said, and added that Nairobi’s building permit fees were the highest in Africa and would turn off investors. 

High land prices and the VAT Act which came into force in September last year have also contributed to the high cost of construction.

Farhana Hasanali, property development manager at Hass Consult said the cost of land was a detriment in growth of the construction sector as it had made it difficult for developers to invest.

Greatest issues

“The cost and availability of land in Nairobi are the greatest issues developers are grappling with. The available land is overpriced which means that constructing on them is financially unsustainable,” she said.

Last month, Mentor Groups Daniel Ojijo said high land prices in Nairobi and its environs were reasons why most developers are opting to buy land more than 50km from the city to build.

“Most developers who want to meet the rising demand for houses have no alternative but to seek land outside the city to put up houses,” he said during the 16th Kenya Homes expo briefing. 

Nathan Luesby, Jenga Web managing director who is also part of the team that crafts the Hass Consult Property Index said with the current land prices in Nairobi and the restrictive investment environment occasioned by the county council’s increased fees, investors can only earn their margins elsewhere.

Mr Luesby said for five years now, land prices in parts of Nairobi had shot up by 1,000 per cent, making it unviable to build houses as it will slow down the timelines on returns. 

The cost of construction materials has also risen in the county. In January this year, most cement makers increased retail prices by at least Sh30 per 50kg-bag in response to the government’s move to impose a Sh140 tax per tonne of cement.