Excessive Taxation Crippling Kenya’s Property Market

There will be tough times ahead for the Kenyan property market when the government’s proposed reintroduction of capital gains tax comes into effect in January next year.

Originally abolished in 1985 for being too restrictive for the development of the real estate sector, the tax has been reintroduced in a bid to remove speculative investment from Kenya’s property market and to raise much needed capital for the government – but the move is likely to cripple an already over taxed industry.

The entire property industry in Kenya is up in arms about the reintroduction of a 10% capital gains tax.  The tax will be levied on the gains made from the disposal of all land and real estate and it is thought that among the damage it will cause will be the over complication of the buying process for purchasers who will have to pay a percentage of the speculative gain up front to the government on behalf of the vendor and then claim the tax back if it turns out they’ve over paid!

Housing units will also become more expensive as developers try to offset their likely losses by hiking up the underlying cost of property in Kenya…

As stated, the tax was originally abolished back in 1985 when the Kenyan government were keen to kick start a healthy property market – local housing stock was in short supply and there was an emergence of interest in beautiful Kenya from property investors and those in search of an exclusive second property – to fuel this interest and to give developers the incentives needed to develop housing for local citizens the tax was abolished to make property a higher returning commodity.

Now that Kenya has a thriving emerging real estate market the government has decided it needs to rein in control a little bit in a bid to reduce the amount of speculative investment activity from foreign and domestic investors.  Furthermore the government has implied that some of the taxation revenue that they will raise as a result of this legislative amendment may go towards the improvement and development of infrastructure that will benefit developers and their customers in the long run.

Property developers in Kenya refute these assurances claiming that they are already heavily taxed and that of the duty they currently pay little or nothing goes back into the construction of roads or services such as schools, healthcare facilities or even attractive public areas that could improve the ranking of their development as an investment commodity.

The property industry in Kenya is already well taxed – this reintroduction of capital gains tax could really cripple the property market in Kenya and all but kill the investment environment and bring an emerging market to its knees…we’ll keep you updated.

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