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Budget could scrap property stamp duty

Updated Thu, June 3rd 2010 at 00:00 GMT +3

By Morris Aron

Recent news that Treasury is considering scrapping stamp duty levied on property transactions presents a new chapter in real estate business.

Well, that is until the proposal is actualised when the Budget is read next week on June 10.

Stamp duty is a form of tax incurred by buyers whenever they purchase property and is paid directly to the Government coffers.

Property analysts see the tax as a hindrance to the growth of real estate business as it increases cost of transactions and is time consuming.

"Property players have always been of the view that stamp duty should be done away with as is the case in countries that have followed the route and successfully encouraged investment into the real estate sector," says Wilberforce Oundo, the chief executive officer of Regent Management, a regional property company.

"As structured now, it is an additional cost to the buyers, is cumbersome to actualise as it takes time and in the process lengthens the duration of a property transaction."

Plans that the stamp duty might be done away with came alive recently when Joseph Kinyua, Treasury Permanent Secretary — noting the concerns of real estate players — hinted that negotiations between the Ministry of Finance’s budget department and real estate professionals were at an advanced stage.

The discussions aim at doing away with the charge altogether in the next financial year beginning July, or at least, changing the manner it is levied.

If stamp duty is abolished, property costs will reduce. Photos: Martin Mukangu And File/Standard

"Payment of stamp duty and a number of contradicting regulations in the real estate sector have been a major concern to Treasury," says Kinyua.

"We are in the process of looking for ways that will address these concerns expressed by real estate players come the Budget day, with a view of doing away with the tax regime all together or revising it in such a manner that will be acceptable to both parties," he adds.

Larger mortgage loans

If treasury abolishes the stamp duty, Kenya will have followed in the footsteps of countries such as South Africa where stamp duty charges were withdrawn years ago to spur development in the property sector and encourage home ownership.

In countries like the United Kingdom for example, which coincidentally Kenya draws most of its laws from, stamp duty tax regime was revised several years ago to take into account the nature of the transfer transaction and other interests. In the UK, stamp duty is varied depending on the property being sold among other considerations while in Kenya, it is charged at a flat rate of four per cent of the total value of any commercial property transaction.

The current stamp duty regime also requires that an individual is charged two per cent of the value of agricultural land bought despite agriculture being the backbone of the countries economy.

Property analysts say a change of the current stamp duty regime or the complete scrapping of the tax will enable commercial banks approve larger mortgage loans at lower interest rates as it will have removed the interest rate premium charge levied in the process of securitisation of any collateral.

Property and finance analysts also reckon that the development is bound to lengthen the repayment periods for mortgage loans and other forms of secured lending as the time consuming process of completing a stamp duty transaction will have been removed. This then enables many in the middle and lower class to own homes.

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