Nairobi builders hit by exorbitant levies

A construction site.
A construction site. Builders are increasingly getting priced out of the city housing market. PHOTO/FILE
Sharp increases in land rates and construction permit fees imposed last year by City Hall have taken their toll on new construction projects in Nairobi, as builders balk at the exorbitant levies.

The State of Development Report compiled by the Kenya Property Development Association (KPDA) and HassConsult said the increased levies have hit builders in Nairobi – slowing down the supply of new homes in the county amid growing demand for housing.

“The increase in fees has contributed to the housing crisis. The [Nairobi] construction permit fee has been increased by a multiple of between 200 and 1,250, from 0.001 to 0.006 per cent of the cost of construction to 1.25 percent,” said KPDA boss Robyn Emerson.

Property developers are currently paying 1.25 per cent of the cost of construction from between 0.001 and 0.006 per cent previously.

“These policy actions are hurting property developers; the fees should be structured according to the development (size and location),” Ms Emerson said.

The report, which pointed out Nairobi’s building permit fees as the highest across the continent, said construction of new houses was growing at 7.5 per cent of the government’s target 250,000 homes.

Farhana Hassanali, a manager at HassConsult, said the cost and availability of land in the county are major issues slowing the construction sector.

“We have no land index to show price movements and construction costs are also high. This is why the industry is characterised by many, small, one-time developers. There aren’t many developers willing to go long-term because the costs make it unsustainable,” Farhana said.

READ: High land prices drive builders out of Nairobi

Nathan Luesby, Jenga Web managing director, said that builders seeking to meet the rising demand for affordable housing in the county were getting priced out of the market, pushing them to build gated communities away from Nairobi.

“Over the last five years land prices in parts of Nairobi have shot up by a thousand per cent, which is why we are seeing the rise of “super developments” where a developer buys a big chunk of land outside the city and puts a huge number of houses on it,” said Luesby.

Check out the current issue of Construction Business Review. Flip through the pages of the paper real-time or download a copy to read offline. Sign up for a FREE subscription to get the paper delivered to your inbox every month.