Approval red tape choking property industry

Before being allowed to put up a housing project, one is required to obtain numerous approvals, which more often than not, take longer than expected, leading to cost overruns. This, coupled with recent increase in approval charges in some counties, is giving developers sleepless nights, writes PETER MUIRURI

Few endeavours are as labour-intensive as putting up a building. Things have been made even worse by the escalating costs, owing to the rising costs of building materials. That aside, securing statutory licences required by a developer is now being cited as another hindrance to home construction.

Sample this: To get development plans approved by county authorities, a developer must submit legal certificates for the various professionals handling the project such as architects, structural engineers and quantity surveyors. This is done to indemnify the authorities should any faults and mishaps occur in the course of the project.

A developer is also required to deposit ownership documents for the property he or she intends to put up. This means he or she should have already applied and obtained a change of user, since the land may have been earmarked for a different purpose. With this also comes land rates clearance certificate.

Within the county offices, a plan approval process entails having input from the public health and safety officials who have to certify that every project conforms to laid down health and safety guidelines, including evacuation strategies in case of a fire.

Physical planning

The physical planner’s desk ensures that your proposed project conforms to exactly the type of structures allowed for that particular area.

And that is not all.  Since the enactment of Environmental Management and Co-ordination Act (Emca), large developers now have to obtain project approval from the National Environment Management Authority (Nema) after submitting an Environmental Impact Assessment study.

According to Nema, EIA study is to ensure that the proposed project and activities thereupon do not have a negative impact on the environment.

“An EIA study is conducted to identify impacts of a project on the environment, predict likely changes on the environment as a result of the development, evaluate the impacts of the various alternatives on the project and propose mitigation measures for the significant negative impacts of the project on the environment,” Nema’s website states.

With most of these requirements out of the way, a developer must still apply for a work permit for the actual construction to commence. If he is going to dig deeper, say for a basement parking, then he will have to acquire an excavation and dumping licence paid for using a formula only known to the issuing authority.

Still, no work can commence before applying and paying for a provisional signboard detailing the various professionals involved in the project. The sign has an “expiry date” — at least up to the stipulated end of the project as stated in the approval documents. Should the project delay for any reason, a developer will have to apply for an extension. 

And have you ever heard of a hoarding permit? If not, then be careful the next time you fence off your building site with those colourful iron sheets. You need to pay for secluding your new property.

A faint-hearted developer would easily give up upon learning of all that is involved before he can begin a real estate development. This has not gone down well with many developers who accuse the government of too much red tape rather than assisting them in their quest to provide housing and create jobs for Kenyans.

They argue that the process of acquiring the licences is taking too long and having a negative effect on home ownership. “The licence regime is large and the process cumbersome. There are cases where some approvals take more than a year-and-a-half to go through, thus denying jobs to young Kenyans who would otherwise, be busy on the project,” says Daniel Ojijo, the executive chairman of Mentor Holdings, a real estate company.

Developers say such delays have a negative impact on the overall project, more so with regard to the estimated construction costs. He says real estate development is a business that is affected by the same financial dynamics as other businesses.

“Costs in this industry can change within a three-month period. A delayed project may be overtaken by events and any promises made to potential buyers may appear hollow. We should also remember that many projects are constructed using bank loans that need to be repaid,” says Ojijo.

According to Norberts Omuoma, a senior project manager at Suraya Property Group, it takes time to think through the project and source the required funds. The needless delays, he says, only help in pushing the price of the finished product upwards.

“Authorities must remember that a developer targets a particular segment that does not last forever. The market may be long gone and the costs of building materials gone up by the time approvals are obtained. This will be reflected in the final costs of the houses,” says Omuoma.

Not only does it take time for a project to be approved, but the costs of obtaining such approvals have also gone up tremendously, especially in Nairobi County, after the recent passing of the Finance Bill 2013.

Developers claim they are now paying almost ten times what they used to pay previously to have their plans approved.

A Nema licence, on the other hand, costs 0.1 per cent of the project’s total cost. Ojijo views this as another impediment to developers who are already reeling under high interest rates charged by financial institutions. “We sometimes feel we are being punished for providing houses to Kenyans. When some counties are talking of giving free land to potential developers, Nairobi County has just engaged the reverse gear by pushing away potential investors through the revised fees. We still don’t know the criteria that was used to revise the fees upwards,” says Ojijo.

He says the Cabinet should support local and foreign investors by coming up with a ‘one-stop-shop’ policy where all needed licences are easily procured “since some are issued by different arms of the same government.”

Ojijo cites the example of Mauritius where an investor council was set up to guarantee a speedy process of issuing such licences to potential investors.

Nairobi County executive committee member in charge of Land, Housing and Physical Planning, Tom Odongo, says there has been slow uptake of county services since the passing of the Bill.

However, he says there is little that can be done about the costs once the law has been passed. He says there are on-going consultations with stakeholders. He urges any aggrieved party to present their views during the consultative window for the 2014 Finance Bill.

“We are currently in the process of preparing the 2014 Finance Bill as stipulated by laws governing the counties. Interested parties can give their views on what they would like to see included in the Bill,” says Odongo.

However, Odongo says such views should not be one-sided “since the county also needs to collect some revenue through the services rendered”.