Tuesday, July 2, 2013

The Effect of the 2013 Budget on Kenyan Real Estate

I wrote this for Dream Properties Ltd website, first published on 2 July 2013

A major downside to the highly anticipated budget unveiled last month is the new taxation mode that might put off any new real estate investors. Property developers have been raising concern over this issue since the unveiling of this year’s budget when National Treasury cabinet secretary Henry Rotich said the government will re-introduce the capital gains tax.

The resounding fear is that it will take a lot of time and resources to make a single transaction because of the new KRA procedures and legal fees which will come up with the new taxation mode. This will have a negative impact on the cost of housing and the consumers will have to bear the burden.

Most developers agree that real estate is still a growing industry and should be given support. Developers need to be encouraged and the taxation mode should not be seen as a move to oppress them. 

Capital gains tax was abolished in 1985 to encourage investments in properties and securities. But these sectors have grown significantly compared to 30 years ago. Kenya is ranked the 10th economy in Africa and first economy in east Africa and possesses a unique location and resources like the port of Mombasa that attract investors who are able to reach other countries easily. The reintroduction of this tax means that the taxman will take his share whenever land, houses, stocks, bonds and other marketable assets change hands. 

Henry Rotich explained, “This will allow wealthier members of our society to also make a token contribution toward our national development agenda.”

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