Africa-Press – Kenya. The slow recovery in the real estate sector in Kenya could be hampered by the triple jump in Capital Gains Tax to 15 per cent.
In an exclusive interview with the Star, Knight Frank CEO Mark Danford said the tax is a disincentive to the sector and is likely to reduce the number of transactions.
“The sector has battled several uncertainties in the recent past including the election cycle, Covid-19 and the global financial meltdown. The rise in Capital Gains Tax is likely to trigger investor flight,” Danford said.
Capital Gains Tax is charged on gains accrued from the transfer of property buildings, land, or shares in Kenya.
This is the second time the proposed increase has been made after the first attempt in 2019 when Treasury had sought to increase the tax rate to 12 per cent.
The taxman is expected to collect Sh2.14 trillion equivalent to 15.3 per cent of GDP, up from the Sh1.8 trillion in the last financial year.
He however indicated that Kenya and South Africa are mature real estate markets that are fairly navigating uncertainties.
Dunford said there is muted growth in almost all asset classes except for the hospitality sector which has witnessed a number of activities in recent months as the sector recovers from the Covid-19 mishaps.
In April, Norfork Hotel in Nairobi reopened after a 21-month closure that saw it lay off employees.
The iconic hotel at the heart of Nairobi Central Business District has been in operation for 116 years and closed indefinitely, citing the effects of the Covid-19 pandemic on business after the first case was announced in Kenya on March 13, 2020.
In May, Radisson Blu Upperhill reopened its doors to the public after a 16-month shutdown amid the Covid-19 pandemic following the acquisition of the establishment by new management.
In July, a Qatari-backed private equity fund bought Crowne Plaza Hotel for an estimated Sh4.6 billion from tycoon Nazir Ahmed Akbarali amid heightened deal-making in Kenya’s hotel sector.
Dunford who was recently named among the top 100 influencing people in the hospitality industry said although Airbnb is eating into hotel traffic, the sector has great potential if it reinvents.
The ranking was done by the International Hospitality Institute, global advocacy, training, and standards organization for the hospitality industry.
He was listed alongside the outgoing tourism Cabinet Secretary Najib Balala for his role as the Vice President, Hotels and Hospitality Group, Sub-Saharan Africa, JLL.
Recently, Knight Frank said Kenya’s supply of commercial space is currently saturated and no new major office developments are expected to enter the Nairobi market until 2023.
The estate agency, residential and commercial property consultancy firm said this is because most firms have either resumed working from the office or have adopted a hybrid version with the ebbing of the pandemic.
According to the firm, prime commercial office rents increased from $1.10 (Sh124.96) to $1.20 (Sh136.32) per square foot (sq ft) per month.
The increase in rentals was mainly attributed to the reopening of the economy.
A significant amount of office space was also released into the Nairobi office market in the second half of last year.
For the malls, Dunford said developers must work with marketing experts before setting up to avoid duplicity of facilities.
“Several malls are still half empty partly because developers did not involve experts. We advise our clients from the conception to marketing phase,” Dunford said.
He added that the country is in dire need of Grade A cold warehousing facilities, terming them as a remedy to the current food insecurity.
“The current warehousing facilities are outdated and hence do not meet the needs of the existing businesses. Kenya won’t be complaining of food shortage if the country had enough cold storage facilities,” Dunford said.
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