Nairobi County's uphill task to net Sh20 billion in land rates

Nairobi City County is looking to collect at least Sh20 billion in new land rates in a move that could make it the first devolved unit to fund its entire budget from internal revenue collection. 

Nairobi Governor Johnson Sakaja says the county is pushing for a city-wide upgrade of existing laws on land rates payment to ensure all property owners meet their obligations. 

“We will regularise development to correct the urban planning oversight of the past and to ease the collection of revenue,” said Sakaja during his address to the County Assembly last week. 

“We will also effect the Sectional Properties Act, 2020, the better to allow owners of units of property, be they apartments or offices, the opportunity to acquire title deeds for their units,” he said. 

The Sectional Properties Act, 2020 and the Sectional Properties Regulations 2021 provide for the registration of sectional properties and the division of buildings into individual units.

It also seeks the conversion of long-term leases registered at the land registry, allowing owners to obtain title deeds for sub-leases. 

According to Sakaja, implementation of the regulations in Nairobi could see the revenue it collects from land rates go up by more than ten times.

 “According to our records, we have 197,500 parcels of land in Nairobi but only 30,000 accounts have been paying for these titles despite this being our largest revenue source,” he said.

“Together with the national government, we have identified 350,800 parcels that we are going to bill each individually to pay for their rates.” 

Data from Nairobi County’s latest financial reports indicate that it collected Sh2.8 billion in land rates in the 2022/2023 financial year.

The county had targeted to collect Sh7 billion in the current financial year but has so far collected a paltry Sh637 million as of December last year.

Expanding the number of land ratepayers to the more than 300,000 properties already on the county’s radar could see Nairobi City County boost its own source revenue by at least Sh20 billion in conservative estimates. The move could also spur the other 46 counties to push for the implementation of the Act within their administrative units.

A study by global advisory firm Adam Smith International commissioned by the World Bank and the National Treasury in 2016 found that county governments have unrealised revenue potential of up to Sh173 billion annually, compared to the Sh35 billion collected in 2016.

The study recommended that counties focus most efforts on property rates which provide the largest potential to bridging this revenue gap. 

In addition to implementing the required legislation to allow counties to set their own land rates, the study also recommended tightening compliance through the use of compliance certificates, interruption of services such as electricity and charging tenants or beneficial owners of the property.

However, while Sakaja has indicated that the Nairobi County Assembly will fast-track the implementation of necessary laws, several obstacles remain.

This includes delays between Parliament and the Ministry of Lands that have so far scuttled the process. 

The Sectional Properties Act 2020 requires that long-term leases be converted into sectional properties within two years after the implementation of the law. This put the deadline at December 2022, a date that has long since passed with no clear guidance from Parliament or the Ministry of Lands. 

Another challenge is the existence of similar legislation that could provide an additional layer of bureaucracy and increase the cost of business for property owners and developers. 

The National Rating Bill, 2022 before the Senate is one such law. The Bill seeks to merge provisions of the Valuation for Rating Act (Cap 266) and the Rating Act (Cap 267) that are deemed outdated and lack provisions that allow counties to prepare accurate valuation rolls. 

The Bill proposes the establishment of a National Rating Tribunal that will hear and determine appeals from property owners and can veto decisions made by counties. Another challenge is the preparation of a new valuation roll to replace the current one that has been in place since 1980. 

Nairobi County has since received Sh374 million in funding from the World Bank to develop a valuation roll using a geographic information system (GIS). “The current land rates billing system involves getting land rating data from valuation offices and then entering it into the rating system manually,” explains a memo from Nairobi County’s Urban Planning and Lands Department.

“This process is slow, cumbersome, tedious and resource-consumptive, prone to mistakes and irregularities.”

Using the GIS technology is expected to allow real-time data exchanges between the land valuation system, land rate calculations and the billing system, thereby improving efficiency and reducing leakages.   

However, a section of property owners has come out to oppose the values that their property has been assigned under the new system, presenting fresh legal challenges to its implementation.