How billions are lost in Kenya's fraudulent land compensation scams

Kenyan taxpayers are losing billions in State land compensation schemes where brokers and speculators exploit loopholes in regulations to make a killing.

This comes even as the government is set to embark on another round of compulsory land acquisition in a number of infrastructure projects across the country.

According to the National Land Commission (NLC), Kenyan taxpayers paid out more than Sh38 billion in compulsory land acquisition affecting 77 projects between 2013 and 2019.

The projects included the standard gauge railway (SGR) and the Lamu Port-South Sudan-Ethiopia Transport (Lapsset) Corridor Project.

In the case for the SGR, the government will have paid more than Sh50 billion by the time ongoing disputes over settlements are resolved.

Former NLC Chairman Muhammad Swazuri is currently fighting fraud charges in court after the commission paid out Sh109 million for a piece of land that had originally been valued at Sh34 million.

Apart from loss of taxpayers funds, experts warn that the billions paid out to community and private landowners as compensation further worsens the price distortion in local property market, leading to a slowdown in private sector investment.

“The national government has traditionally engaged counties and negotiated for rates for compulsory acquisition and the money is supposed to be paid to counties,” says Mwenda Makathimo, chairman of the Land Development and Governance institute.

“However, community land has always been undervalued because much of this land has not been on the open market and thus there are no comparable sales figures to establish its value and calculate compensation rates.”

This gap exposes landowners and the government to a two-fold challenge.

First is speculation where the prices are inflated based on media and community frenzy about the proposed project, and the notion that the government is always willing and ready to pay above-market prices.

“The second challenge is that community land is always open to undervaluation especially where the land has been fallow and the residents have, until then, had no immediate need to sub-divide and sell,” says Dr Makathimo.

The recently enacted Land Value Index (Amendment) Act, 2019 is expected to help the government address some of the issues that crop up when developing mega projects including the possible self-correction of property prices.

The law is expected to substantially reduce the amount of time taken to complete power line projects, giving State agencies rights to proceed with projects as negotiations with owners on the cost of land continues.

It gives the government power to acquire privately owned land compulsorily for a project, with NLC allowed to take possession of the land before payment is done.

Pricing shall be based on an index developed by the national and county governments as opposed to the market prices that NLC uses when acquiring land earmarked for projects.

However, the Act has received criticism for introducing new hurdles that are likely to worsen the challenges it meant to address in the first place.

“The Act proposes using stamp duty payments to calculate the value of public land to be acquired but this is a false assumption that all land in the country is registered and available for sale in the open market,” says Makathimo.

“Community land has no stamp duty figures because much of it has never been offered for sale, thus no basis to value it.”

At the same time, the Act proposes using tax returns to calculate loss of profits that landowners might claim from the government, alongside the compensation on the value of the land.

This will be limiting for pastoral communities, for example, who derive income from land the government might seek to acquire but might not have tax returns or stamp duty valuations of their land.

According to the Institution of Surveyors of Kenya (ISK), the valuation policies are also at variance with demand and supply forces in the open market.

“Land markets operate on the forces of demand and supply and it is not possible to subject the same to legislative controls, not unless we want to cripple transactions in land,” says ISK President Abraham Samoei.

“Land values are dynamic and changes are recorded continuously as transactions occur. The government ought to publish the indices for transparency and ensure that they are based on market values. This is the only way there can be fairness in the implementation of this Act.”

ISK says the law contravenes the provisions of the Constitution that require prompt compensation for compulsorily acquired land and neglects the rights of landowners and community interests.

At the same time, the proposal to have the Lands Cabinet secretary as the custodian of the Land Index has raised concern over political interference that has historically dogged State agencies.

“The way the Act is structured suggests the Land Index will be a one-off exercise which is counter-intuitive since land prices change with time,” Makathimo says.

“A more practical approach would be to establish a structure such as the Nairobi Securities Exchange where values are set and updated in tandem with the market realities and the operations are kept independent of government or Parliament.”

According to law firm Anjarwalla and Khanna, giving NLC the powers to take possession of land before it makes payments might disadvantage some landowners, including families that have already settled on the land.

In such instances, a family would be required to look for alternative places to settle while the government processes payments.

“Previously, NLC was required to compensate a landowner prior to taking possession of the land,” states the firm in a report.

“However, the Act now allows the NLC to take possession of the land and pay compensation at a later date within a reasonable amount of time.”

The firm says it may be argued that the provision which provides for compensation to be paid after possession is taken is unfair and unreasonable, particularly where the property was being used for residential purposes by its owner.

“Similarly, the provision for compensation to be paid within one year is arguably unconstitutional given that the Constitution expressly provides for prompt payment of compensation. One year may be regarded too long a period to be considered prompt,” it says.

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