The Real Estate Regulation Bill 2023 can pave way for a more transparent, efficient, and accountable Real Estate sector in Kenya while considering the concerns of existing regulatory authorities, and incorporating various recommendations by industry stakeholders
The Kenyan Real Estate sector has been a major contributor to the country’s Gross Domestic Product (GDP) in recent years, expanding at a 5-year Compounded Annual Growth Rate (CAGR) of 5.7% to Kshs 521.1 bn in Q2’2023, from Kshs 394.6 bn in Q3’2018. Additionally, the Real Estate and construction sectors collaboratively contributed 15.5% to the total GDP in Q2’2023, only behind the Agricultural sector that contributed 19.6%. This impressive performance of the sectors in Q2’2023, which surpassed perennial major contributors to GDP such as financial and insurance at 9.6%, transport at 9.4%, manufacturing at 8.0% and trade contributed at 7.6%, underscores the growing importance of these two sectors to the Kenyan economy and signifies a positive outlook. Furthermore, this highlights attractive prospects for investors and developers to capitalize on the rising demand for housing and various Real Estate properties.
Existing Regulatory Gap
In our topicals namely, Real Estate Developers Regulatory Framework and Off-Plan Real Estate, we highlighted the urgent need for Kenya to establish a regulatory framework that is anchored in law, addressing the unique needs of Real Estate developers, financiers and other stakeholders in the sector including buyers. Additionally, we highlighted the lack of a competent regulatory framework in the off-plan investment sector, as the existing provisions do not fully encompass the specific regulatory needs and protections required for off-plan investments. These gaps in regulation have allowed some developers to exploit the system, leading to various challenges and risks for buyers.
In light of the above concerns, it became imperative to institute legislation that effectively addresses these challenges, thereby ensuring robust consumer protection and the mitigation of a diverse array of risks and uncertainties such as developer non-compliance, fund mismanagement, and unethical practices within the Real Estate and construction sectors. In response to these critical industry issues, the tabling of Real Estate Regulation Bill of 2023 before Senate in August emerged as the culmination of collective efforts of lawmakers to restore order, transparency, and sanity in the sector. Sponsored by Trans-Nzoia Senator Allan Chesang, the Bill aims to establish regulatory measures for Real Estate developers, agents, and projects.
Acknowledging the importance of regulating the sector and recognizing that the Bill is a significant step towards introducing a structured and accountable regulatory framework within Kenya's Real Estate domain, we assert that the Bill suffers from substantial shortcomings, particularly concerning its compatibility with existing Real Estate and construction industry regulations. Therefore, it is of utmost importance that these discrepancies are harmonized with current laws and regulations, necessitating a thorough redrafting of the Bill and further deliberation before its formal enactment.
Real Estate Regulatory Bill 2023 Framework in Kenya
The Bill, in its proposals, discusses several key aspects, including; i) the establishment and operation of the Real Estate Board, ii) the role and functioning of the Registrar and register in the general regulatory mechanism, iii) the process for registering and licensing Real Estate agents in Kenya, iv) the procedures for registering Real Estate projects, iv) the specific duties assigned to Real Estate developers has to undertake within the law, v) the rights and obligations of Real Estate buyers designed to enhance consumer protection mechanisms, vi) potential offences and the corresponding penalties for those who violate the proposed regulations, and, vii) the critical repeal of the existing Estate Agents Act, Cap 533
Key Concerns Raised from the Bill by Industry Players
However, key industry stakeholders, including the Estate Agents Registration Board (EARB), the governing body for Real Estate agents in Kenya, and the Institution of Surveyors of Kenya (ISK), have strongly opposed the Bill. On September 27, 2023, the Estate Agents Registration Board (EARB) issued an official statement in response to the proposed Real Estate Regulation Bill, 2023. The EARB expressed its reservations regarding the Bill, emphasizing that they were not consulted or involved in its preparation. Their key contention revolves around the existing regulatory framework that already governs real estate agents through the Estate Agents Act, Cap 533. They argue that the Bill should primarily focus on regulating property developers and land trading companies, as real estate agents are adequately regulated under the current legal provisions.
On 21st September, 2023 Institution of Surveyors of Kenya (ISK) also issued their statement on the proposed Bill. ISK is a professional organization that unites various disciplines in the Real Estate sector. The body raised concerns and recommended that; i) regulating the whole sector with one Act and under one board is a hard task for the government and hence every stakeholder in the sector should be handled and regulated separately, ii) the body underscored the presence of the EARB under the Estate Agents Act, tasked with regulating the Real Estate agency sector, iii) allocation of more resources to the EARB by Ministry of Lands to empower its operations countrywide and hence no need additional regulatory framework for estate agents, and, iv) review the composition of the proposed board to majorly include qualified, registered, licensed, experienced professionals in the industry from every segment of Real Estate.
In our view, we believe that initiating a roadmap for regulating a sector that has long faced challenges is a positive step. The Real Estate sector has received limited attention despite being the second-largest contributor to the country's economy for over a decade. Addressing these longstanding issues should enhance sustainability, accountability, and transparency in the sector, thereby restoring the trust and confidence that many Kenyans have in investing in the Real Estate market. However, we raise crucial issues in the Bill such as: i) issues of duration of the Real Estate agency license, ii) very long Defects Liability Period (DLP), iii) registration and licensing of large projects in phases, iv) ambiguity of the title, and, v) deletion of role of quantity surveyor as project cost accountant
To address the concerns inherent in the proposed Real Estate Regulation Bill 2023 and make it more workable, we given the following recommendations to the Kenyan government;
- Harness Collaboration of Existing Authorities: Engage in a more extensive consultation process with existing regulatory bodies such as the Estate Agents Registration Board (EARB) and the Institution of Surveyors of Kenya (ISK) to understand their concerns and incorporate their suggestions into the Bill. This collaboration can help create a more comprehensive and effective regulatory framework,
- Separate Regulatory Mechanisms for Different Stakeholders: Recognize the unique needs and challenges of different stakeholders in the Real Estate industry and consider separate regulatory mechanisms where necessary. For example, architects, engineers, and quantity surveyors have distinct roles and responsibilities, and their regulation could be more effectively addressed through their respective professional bodies,
- Clearly Establish the Scope of the Bill: Revise the title of the Bill to accurately reflect its scope. If the Bill predominantly targets specific stakeholders like developers, real estate agents, and buyers, the title should reflect this focus to avoid confusion,
- Define Reasonable Periods: Reconsider the proposed defect liability period for developers. While extending it to five years can protect buyers, it may lead to increased property prices and financial risks for developers. A balanced approach, such as setting the period at two to three years, could be more effective. In addition, consider extending the license validity to a reasonable period e.g., 12 months since registration, to reduce administrative burdens on real estate agents and ensure that they can efficiently conduct their business without frequent renewals,
- Empower Existing Regulatory Bodies: Provide additional resources and authority to existing regulatory bodies such as the Estate Agents Registration Board (EARB) to improve their effectiveness in regulating their respective sectors of the Real Estate industry, and,
- Professional Education and Training: Promote ongoing education and training for real estate agents, developers, and other professionals in the industry to enhance their competence and professionalism. This will emphasize transparency and accountability measures in the Bill to reduce fraudulent activities and unethical practices in the Real Estate sector.
For more information, please see our Review of the Real Estate Regulation Bill 2023 topical.