Capital gains tax won’t slow growth, says developer

A leading real estate player has welcomed the re-introduction of capital gains tax, saying it won’t slow down growth in the sector.

HassConsult, real estate developers and producers of the quarterly Hass Property Index report, say the five per cent tax will not negatively affect the country’s property market.

“We are not worried about capital gains tax since it is not as huge as it is in other countries like Zambia, Nigeria, South Africa, and Tanzania,” said Sakina Hassanali, head of marketing and research at HassConsult, during the release of the Hass Property Index report for the third quarter of 2014, on Wednesday last week.

There have been fears by investment analysts that the new tax, which was approved in the Finance Bill by President Uhuru Kenyatta in late August (it comes into force in January 2015), will scare away investors and property developers.

The tax, which is returning after being suspended in 1985, is expected to earn the Kenya Revenue Authority (KRA) Sh7.5 billion annually.

Capital gains tax is normally levied on the profit (gain) real estate, stock market and mining investors realise from the sale of their investments.

Compared to other sub-Saharan countries that levy capital gains tax, Kenya will be the fairest – at five per cent. South Africa levies a 40 per cent capital gains tax, Uganda 30 per cent, Botswana 25 per cent, Tanzania 20 per cent and Nigeria and Ghana each charge ten per cent.

Vibrant market

The HassConsult survey reported a renewed vibrancy in the housing market, with apartments recording the highest increase in asking price at 3.6 per cent, followed by detached houses, which were up 3.2 per cent and semi-detached houses rising by 2.4 per cent for the third quarter of the year.

The growth in asking price for middle and high-end property accelerated in the third quarter by 3.1 per cent on the previous quarter, and 4.7 per cent on a year earlier.

The steep rise in rent also appeared to be levelling off, with landlords now earning restored rental yields at well above bond yields, and enjoying property price appreciation as well, said the report.

Infrastructure development was seen to impact positively on real estate development, giving rise to new malls and residential developments.

Hassanali said that high interest rates and self-employment still hinder access to mortgages. “It’s sad that mortgage companies only favour salaried employees and not the self-employed hence hindering mortgage uptake,” she said.

Inflation

Hassanali said that house price inflation, which was particularly sharp in 2008, seeing yields move to lows of around seven per cent, now appears to be reaching its conclusion and there is a move into a new period of take-off in sale prices and investment returns.

“Rents rose by more than 30 per cent in the 18 months from January 2012, in a steep and continuous upwards trend, but the growth slowed during 2014, to just 0.4 per cent in the third quarter,” said the report.

The Hass composite house price index is based on 4,000 to 6,000 property prices per quarter. It has tracked more than 100,000 house price records from across Kenya since its launch over five years ago.

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