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What’s the fair value of forced land acquisition?

REAL ESTATE
By Peter Theuri | May 27th 2021

An aerial view of the ongoing construction of the Nairobi Expressway passing through waiyaki way on Marrch 7, 2021. [David Gichuru,Standard]

The government sometimes decides to acquire private land without necessarily asking the owners if they are willing to give it up. This is called compulsory acquisition.

If the government wants to build a roadway that passes through your parcel of land, they will seize the land and compensate you.

The same will happen if there is a mineral deposit in your land. You will not cash in on those gold reserves, it all belongs to the State. And if a public purpose facility is to come up, such as for defence, stadia, schools and hospitals, the government always gets its way.

It has been speculated that influential people buy parcels of land that the government wants to acquire, or property near such places, and await a windfall once the State comes calling.

In a series of government projects in 2020, which included the Standard Gauge Railway (SGR) and the Lamu Port-South Sudan-Ethiopia Transport (Lapsset) corridor project, the government parted with billions of shilling in compensating people who lost their land through compulsory acquisition.

For the SGR, it was estimated that the government would have paid more than Sh50 billion by the time disputes over compensation were resolved.

The compensation for the Mombasa-Nairobi section was estimated at Sh33 billion, equivalent to 10 per cent of the total project of Sh327 billion cost.

Other projects such as the Western Bypass and James Gichuru Junction-Rironi upgrade, which are nearing completion, have compensated landowners for hiving off their property.

The James Gichuru Junction-Rironi road passes through a densely populated section of Nairobi and Kiambu, and the compensation runs into millions of shillings.

“Some of the property owners were compensated for undeveloped open land but many other got extra for the property having residential houses, commercial developments, and even trees,” explained Stephen Njuguna, a land agent in Kikuyu.

“For most of the area along the highway, the rate of compensation averaged Sh60 million per acre. The value of developments was calculated, then 15 per cent of the total added as disturbance cost.”

The actual landowners, who relinquish their parcels to the government, arguably enjoy less benefits compared to their neighbours who stay put because the value of the property rises.

Granted, compensation is not done on speculative estimates but the market value of the land at the time of issuance of notice of interest by the government.

When the State takes over land and develops it, the value of nearby property increases.

Chapter 295 of the Land Acquisition Act says of the compulsory acquisition: “The acquisition of the land is necessary in the interests of defence, public safety, public order, public morality, public health, town and country planning or the development or utilisation of any property in such manner as to promote the public benefit.”

Any of these developments raises the profile of an area, and thus the attractiveness to investors and new settlers.

Not even community land is immune to compulsory acquisition.

The National Land Commission (NLC) decides on the compensation to be made to a landowner when a piece of land is deemed perfect for public use.

“The NLC decides which valuers to use, often using their internal valuers or from the valuation department in the Ministry of Lands,” says Dr Mwenda Makathimo, a land expert and licensed valuer.

In rare cases, where the capacity in the NLC is not sufficient, they engage private valuers.

The NLC is expected to make regulations for just, fair and prompt compensation.

“People cannot be compensated below the market value,” notes Dr Makathimo. “The rules are gazetted.”

While one Latin maxim on land ownership and administration states that anything that is permanently attached to the land belongs to the land and thus to the owner of the land, in most countries, the mineral resources are controlled by the holder of the radical title, the government.

In the United States, mineral resources belong to the landowner. Conservative Commonwealth states are among those in which natural resources, such as minerals, are exploited by the government for the public good.

“The reasoning is that the mineral occurs naturally and has the potential to benefit the public. It makes sense; if oil is to be drilled in someone’s piece of land, we have to realise that it could have cut across many people’s pieces of land enroute to that specific parcel, so why should the owner of the parcel benefit alone?” says Makathimo.

No parcel can survive without the collective, and so a naturally occurring resource benefits a whole community.

If the government acquires land for mining, the owner will most likely get less than the value of the mineral because the land will be billed at the market value.

Where land is acquired compulsorily, the Act says, full and fair compensation shall be paid promptly to all persons interested in the land.

“The commissioner shall appoint a date, not earlier than 30 days and not later than 12 months after the publication of the notice of intention to acquire, for the holding of an inquiry for the hearing of claims to compensation by persons interested in the land, and shall cause notice of the inquiry to be published in the Gazette at least fifteen days before the inquiry; and serve a copy of the notice on every person who appears to him to be interested or who claims to be interested in the land,” reads the Act.

The scramble for land around areas that are being compulsorily acquired by the government is probably one of the most ingenious moves by speculators.

They wish to benefit indirectly, land prices rising because neighbouring land has changed hands and the government is developing it. Or starting businesses as settlements increase.

Land prices shoot up around areas where roads are coming up, for example, as the opening up of hinterlands raises the profile of property with investors circling. Businesses sprout, and the economic viability of some previously moribund land increases.

The same happens in the case of a mine. As workers come into work, the price of land in the surrounding areas rises.

The secret to one selling land at prime prices may just lie in the government’s decision to take over nearby land through compulsory acquisition.

The government, and your neighbour, might be the difference between you owning land worth a few million, or hundreds of millions.

Makathimo says compensation is done with the legally approved land use. If the land is supposed to be agricultural and the owner has made it commercial, they shall not be compensated for the commercial use.

“Disturbance is accounted for, capped at about 15 per cent of the market value. Owners are also compensated for the loss of income and profit,” he says.

Valuation could be done for a full parcel of land even when not all of it is taken up - a severance effect is taken into account and what is lost compensated for. In such cases, the reduction of productivity of the remaining parcel of land is what gets compensated.

Also, the injurious effect is compensated, such as when a house is cut into half. One is compensated for the development they made on the land and the rights they would have exercised on it.

 “Compulsory acquisition is inherently disruptive. Even when compensation is generous and procedures are generally fair and efficient, the displacement of people from established homes, businesses and communities will still entail significant human costs,” says the UN Food and Agriculture Organisation.

“Where the process is designed or implemented poorly, the economic, social and political costs may be enormous. Attention to the procedures of compulsory acquisition is critical if a government’s exercise of compulsory acquisition is to be efficient, fair, and legitimate.”

After the award (compensation) has been made, the Commissioner of Land takes possession of the land by serving a notice to every person interested in the land that possession of the land and the title to the land will vest in the government.

The government, however, is keen not to pay an ‘exaggerated’ amount for land that has only been improved because the owners anticipated the acquisition. If the land was used for illegal activity, its value takes a hit.

“In assessing the market value, the effect of any express or implied condition of title or law which restricts the use to which the land concerned may be put shall be taken into account,” the Land Acquisition Act says.

“If the market value of land has been increased, or is currently increased the increase shall be disregarded: an increase because of an improvement made by the owner or his predecessor in the title within two years before the date of publication in the Gazette of the notice of intention to acquire the land unless it is proved that the improvement was made bona fide and not in contemplation of proceedings for the acquisition of the land.”

Valuers will calculate the sales of comparable parcels in a neighborhood and can estimate the value of a parcel of land.

NLC says if the award is not accepted, or if there is a dispute about who is entitled to compensation, the amount of compensation is paid into a special compensation account held by the commission.

The value of your land might be at the mercy of your neighbour, and the government. If that neighbour’s land is taken by the government because he struck gold, then you might just have struck gold yourself, and might sell for a much higher price.

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