By Morris Aron

Housing industry players are calling for the adoption of a law requiring that all developers disclose construction costs and profit margins to tame the errant property pricing trends in the country.

The practice, if anchored into law as is the practice in developed countries, will make it compulsory for developers to show any buyer a bill of quantities — a document prepared by a quantity surveyor that shows the quantity and cost of materials used to construct a house — before selling such a property.

"It is crazy out there. Properties which are valued at Sh3.5 million or less are being sold at Sh10 million and above," said Mr Justus Munene, managing director of Dayton Valuers, a property firm.

An estate under development in Nairobi. There is need control greedy property developers capitalising on growing demand for urban housing.

"I pity individuals who have bought such property and banks which may be sitting on overvalued property, which would not recover loans advanced if they were sold."

There is growing consensus that there is need control greedy property developers on the prowl who are capitalising on growing demand for urban houses to make a quick buck.

Reports indicate that developers are making upwards of 200 per cent profit by pricing their houses without disclosing to a buyer a bill of quantities and industry-allowed profit margins.

Currently, there is no provision in law that compels developers to disclose such information to buyers, a situation that has resulted in over-priced properties as property developers maximise their return to investments.

Housing sector players say that the absence of such a law has left a window for developers to exploit people through collusions with banks and valuers.

But even as this debate rages on, property developers have stuck their ground, saying property prices reflect high demand in the market.

"Private developers go into real estate to make profits as any other business in a liberalised economy," said Mr Daniel Ojijo of Mentor Group, a real estate company during a recent homes expo.

"It all boils down to the forces of demand and supply." Investigations by Financial Journal indicate the gaping difference between the cost of a property and its selling price.

A few developers have made up to 200 per cent in profits. Most properties, however, fetch 100 per cent in profits. In one case in Athi River, housing units that took Sh2.5 million to put up are being sold for Sh6 million.

In Langata, a four-bedroom apartment, which cost Sh4 million to construct is being sold at Sh8 million.

The trend is widespread in the real estate business and it is feared if left unchecked, it could tear the credibility of some mortgage providers, valuers and the Institution of Surveyors of Kenya.

"I can confirm to you that this practice is prevalent between the developers, valuers and banks," said a real estate professional who asked not to be quoted citing his reputation.

According to industry players, the practice which has been going on for a while has seen thousands of home buyers lose millions of shillings in shoddy deals between developers and banks. Real estate analysts say that the latest development coupled with the on-going debate over valuation practices in the country could mean that banks and home owners could be sitting on property valued much less than initially thought - a big risk for financial institutions and the banking system.

While most valuers rely on a comparative model that leans on valuation based on the latest sale transaction in an area internationally, valuers are required to factor in construction costs and the income it is generating.

If the distortions prove to be widespread in the coming months, banks that offer mortgage and their customers may find themselves in a fix.