Rescuers search for survivors after a building under construction collapsed in Murang’a County on June 20. A new Bill provides for mandatory registration of all real estate projects.
News
Premium
Proposed law aims to rein in rogue real estate developers
Actress and radio presenter Jacqueline Nyaminde, known by her stage name Wilbroda or Awilo, fell victim to a rogue real estate developer 12 years ago.
Wilbroda was with two of her contemporaries in the entertainment industry when they were sold to a deal that was too good to turn down; or so they thought.
Together with Kazungu Matano alias Otoyo and Jalang’o (Phelix Odiwuor), now Lang’ata MP, the three each paid at least Sh500,000 deposit for a three-bedroom house that was to be put up in Kisaju, Kajiado County. At that time, they were part of the famous Papa Shirandula cast.
This was the deal. The three, together with other investors, were sold a dream of owning a house in Kisaju in a plan that involved buying a house in advance as one waited for it to be constructed, what is called off-plan.
A buyer was to pay a deposit of at least Sh500,000 and clear the rest of the Sh3.5 million for a three-bedroom house, complete with a domestic servant quarter, as the construction came up.
The three were to be brand ambassadors for the real estate firm carrying out the development by helping them to push their content.
“We were in it together. Jalang’o went to the place and told us it looked nice. He didn’t think things would go the way they did,” narrates Wilbroda.
“We were really excited, more so because we were pushing the brand and so they had a special price for us. We even did an interesting skit for them,” she adds.
In return, the three were to pay Sh2.7 million instead of the Sh3.5 million other buyers were paying.
They were only required to pay the deposit and the remaining amount was to be offset by whatever amount the company was to pay them.
“You know that sheet of paper where they tell you your house will be here? They sold us the dream, showed us the photos, what the estate will look like and what it will have. We even chose houses close to one another,” she recalls.
Time passed but the company did not call them for more jobs. Furthermore, no more site visits happened even after they tried to follow up. Eventually, one of the officials of the firm, who was a very close friend of theirs, disclosed to them that the houses they were hoping for would not materialise.
They thought of getting a lawyer but let go of the plan because of how long the process of following for a refund would have been.
“The dream never came to be, and whatever amount of money we had paid was never refunded as the company soon went under and so we didn’t know who to talk to,” she says.
John Otieno, not his real name, had saved Sh400,000 after being in the media industry for six years and was itching to become a homeowner, but he missed out on the Kisaju project.
Months later, there was another deal that sounded just like the one he had missed out on, but this one involved buying land. Not to be left behind again, Mr Otieno took the risk.
He topped up his lifetime savings with a loan from a Sacco. Armed with Sh800,000, he bought two parcels of land measuring 50 by 100 from a company that was selling land in Syokimau.
“It was a sweet land deal and my plan was to sell one parcel and build on the other. I did not sense anything off as my neighbour had taken a loan with Barclays Bank (to buy his piece of land) and I was sure banks do their due diligence. We were all happy and thought everything was fine,” he says.
But they were wrong. Unbeknown to him and more than 3,000 other investors, they had bought land set aside as a flight path for the Jomo Kenyatta International Airport - the land belonged to Kenya Airports Authority.
“I remember I was traveling back to Nairobi from home when I was told that things were not alright. I was sent images of bulldozers bringing down houses,” he recalls.
“I took a cab from JKIA to the place. When I arrived, there was total confusion as people were trying to salvage whatever they could. For me, I had the land but I had not started putting up my house,” he adds.
Mr Otieno says what followed was a long court process which has yielded nothing since they are yet to be compensated.
“I gave up,” he says, “It was a well-planned con scheme by the directors of the firm and we fell for it as they were even paying land rates.”
A parliamentary committee report on the demolitions estimated that land buyers lost millions of shillings in the demolitions.
The report named State agencies and land companies as culpable in the criminal activities that saw innocent land buyers duped into purchasing and developing homes on public land.
Government officials, including the district lands and physical planning department officers in Machakos and the Commissioner of Lands, were found to have abetted the fraudulent deals.
Angeline Alusa is another Kenyan that has lost money in such fradulent deals.
She lost part of the money she had invested in a real estate company which operated two offices in Nairobi along Kimathi and Mama Ngina Streets.
She was introduced to the firm in October last year by a colleague who introduced her to her financial advisor, who was an employee of the company, before signing up two months later.
Ms Alusa invested Sh100,000 while her friend put in Sh300,000 and signed a contract stipulating that they were to get 15 percent monthly returns of the amount invested for six months before the company returned the principal amount should one wish to pull out.
“The monthly return was a motivation, and people invested up to millions as the amount of money to be invested was not capped. They said the 15 percent was from the businesses they did, including real estate and car hire. It was like they were collecting up capital to invest with, and after selling the houses, they would use the profit to pay the investors,” narrates Alusa.
Investors’ money
She was to start receiving her money in January this year. All went well and she was paid for four months before everything came to a standstill.
But the red flags were there, which she ignored. In January, the company told them the government had been hiking taxes, so one month of their returns would go towards paying the taxes, therefore they would only get paid returns worth five months, the last going to service the ‘taxes’.
“They paid me for four months, and on the fifth one, they did not pay and have never returned the principal,” she explains.
She observes the cat and mouse game began in May when they were told the company was conducting a verification exercise of individuals who had invested with them after allegedly realising there were “ghost investors” and so they wanted to streamline their system.
“They didn’t give timelines of when they would complete the verification but they kept sending messages that we should bear with them that once the process was done they would pay back our money. Four months later, nothing has happened,” says Ms Alusa, explaining that she and others eventually went to their offices but they had closed down. “There was even a criminal case against the owner of the company. The DCI posted the story of the company in their Facebook pages last week,” she adds.
But that was not all. She says that initially, the deal was an investment kind of thing where one was to contribute a certain amount of money, but later called for a meeting saying they had started an off-plan housing project and recommended people to invest in the same.
The company put up a poster that they were constructing houses in Thika and people paid, she says. She missed investing in the plan by an inche.
“The deal was too good as a three-bedroom house was going for Sh4.9 million and we were to only deposit Sh600,000. Those who were already with them were to pay only Sh250,000 as deposit. So there are investors who invested in the off-plan housing project.”
The cases above are not isolated as real estate companies, including some which have turned out to be rogue, have been competing for airtime during prime time, where directors cough millions to secure advertising slots to reach out to potential buyers as they seek to cash in on the high demand for property ownership.
Some firms even hire celebrities and media personalities as their ambassadors to create confidence, only to leave their clients in tears after failing to meet their end of the bargain, walking away with billions of investors’ money.
To reverse the growing trend, MPs are working on legislation to rein in rogue real estate developers perpetuating fraud that has ruined lives of thousands of land and real estate investors in the Sh100 billion industry.
If enacted, the new law will require registration of real estate projects, ring-fencing payments made by investors to ensure completion of projects and guarantee the rights of purchasers including the provision for water, sanitation, electricity and other amenities and services as agreed to in contracts.
The new plan is contained in the Real Estate Regulation and Development Bill 2023 sponsored by Trans Nzoia Senator Allan Chesang’.
The bill seeks to put in place mechanisms for the registration of real estate agents, brokers and developers with the aim of streamlining operations within an industry bedeviled with mounting cases of fraud with the current regulatory regime faulted for being ineffective in regulating the sector.
The development will see punitive penalties including a fine not exceeding Sh5 million or imprisonment for a term not exceeding two years or both for rogue developers, real estate agents and brokers.
Mr Chesang’ says the principal purpose of the Bill is to put in place mechanisms for the regulation of real estate agents and real estate projects with the Kenyan economy, the largest economy in East Africa, enjoying a real estate market turnover of over Sh100 billion annually.
In order to protect buyers from unscrupulous conmen, purchasers will be entitled to obtain the information relating to approved plans, and layout plans along with the specifications, approved by the competent authority.
In addition, buyers will be entitled to know the time schedule of completion of the project, including the provisions for water, sanitation, electricity and other amenities and services as agreed to between the developer and the purchaser in accordance with the terms and conditions of the agreement for sale.
In addition, investors in the multibillion real estate sector will also be forced to seek registration, licensing and plan approvals if the proposed law is enacted.
The bill provides for mandatory registration of all real estate projects with the Real Estate Board, set to be established under the bill, timelines for registration and sanctions for failure to register.
As for the board, it will be tasked with streamlining the sector through regulation of real estate projects, agents and brokers by being responsible for the registration of real estate agents, real estate projects and licensing.
The board will also prescribe standard fees and charges to be levied by real estate agents and developers in addition to publishing and maintaining a public database of all real estate agents and brokers who have applied for registration, those eventually registered and those whose registrations have been rejected or revoked.
Maximum of 30 days
The board will also be tasked with advising the national and county governments on the regulation and development of the real estate sector and regulate real estate agents and real estate projects.
To protect the industry from rogue developers, the board will be expected to maintain a public database with names and photographs of developers who have defaulted on various projects including information on the defaulted projects.
It will appoint a registrar, who will be its chief executive officer, to ensure all developers, real estate agents and brokers are registered and the register maintained.
The registrar will be charged with keeping a register of all registered real estate agents, developers and brokers as well as that of consulting firms registered by the Institution of Surveyors of Kenya and approved by the board.
Failing to comply with such orders or continuing to be unregistered will see a developer liable to imprisonment for a term not exceeding three years or a fine of not less than 10 percent of the estimated cost of the real estate project, or to both, upon conviction.
For delays in completion of projects, penalties will include imposition of sanctions not exceeding Sh50,000 per violation per day for a maximum of 30 days.
Providing false information will see an individual liable to a penalty of five percent of the estimated cost of the real project, as determined by the board.
A real estate agent who fails to comply with orders of the board shall be liable to a penalty for every day during such default which may cumulatively extend up to five percent of the estimated cost of the plot, apartment or building.
“A person who fails to comply with, or contravenes any of the orders or directions of the court issued under this Act commits an offense and shall, upon conviction, be liable to imprisonment for a term not exceeding three years or to a fine not exceeding Sh10 million or to both,” reads the bill in part.
The Board’s boss will also be expected to publish in the Kenya Gazette and two newspapers of national circulation, by March every year, the name, address and qualification of each registered practicing real estate agent.
“This Act shall not relieve the Board of the liability to compensate or pay damages to any person for any injury to them, their property or any of their interests caused by the exercise of any power conferred by this Act or any other written law or by the failure, whether wholly or partially of any works,” adds the Bill.
To facilitate registration of the agents, developers and brokers, an online platform shall be established by the registrar.
The portal will also be used to receive complaints and recommendations from industry stakeholders and the public.
A developer or a real estate agent who fails to register themselves with the board will be deemed to have contravened the law and shall be liable to pay not less than 10 percent of the estimated cost of the real estate project as determined by the board.
The Bill goes on to state that no developer shall advertise, market, book, sell, offer for sale or invite persons to purchase any plot, apartment or building in any real estate project that is not registered in accordance with this Act
Where a real estate project is to be developed in phases, every such phase shall be considered a separate real estate project and the developer shall obtain registration under this Act for each phase separately.
It adds that 70 percent of the amounts realised for the real estate project from the purchasers, from time to time, shall be deposited in a separate account to be maintained in a scheduled bank to cover the cost of construction and the land cost and shall be used only for that purpose.
The developer shall get their accounts audited within six months after the end of every financial year by a chartered accountant in practice, and shall produce a statement of accounts duly certified and signed by such chartered accountant and it shall be verified during the audit that the amounts collected for a particular project have been utilised for that project and the withdrawal has been in compliance with the proportion to the percentage of completion of the project.
In regards to the rights and duties of allottees, the bill states that allottees shall be entitled to obtain the information relating to approved plans, layout plans along with the specifications, approved by the competent authority.
The allottee will also be entitled to know the time schedule of completion of the project, including the provisions for water, sanitation, electricity and other amenities and services as agreed to between the developer and the allottee in accordance with the terms and conditions of the agreement for sale.
Mr Chesang said the bill aims to facilitate the growth and promotion of an efficient and competitive real estate sector by protecting the interest of allottees, developers, agents and brokers. This is by creating a single window system for ensuring time-bound project approvals and clearances for timely completion of projects.
“The bill outlines the obligations of the county government in regard to the real estate sector, issuance of approvals for real estate projects and regulation of the real estate sector,” said Senator Chesang’.
The bill has been committed to the Senate Lands and Environment committee chaired by Nyandarua Senator John Methu for consideration.
