Stakeholders call for separation of functions to regulate real estate sector

Real estate

Should it be passed into law, those who do not comply with the Real Estate Regulation Bill 2023 will be subjected to hefty penalties.

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What you need to know:

  • Real Estate Regulation Bill 2023 should help to discourage rogue actors from engaging in fraudulent transactions.
  • The framework for regulation of estate agents is also stipulated under the Estate Agents Act Cap 533.

In August 2023, Trans Nzoia Senator Allan Chesang sponsored a Bill that sought to address the sharp rise in cases of real estate fraud in the country.

Exploiting the lack of a proper regulatory framework, rogue developers and unscrupulous land trading companies have been formulating schemes to swindle unsuspecting buyers of their hard-earned money.

The Real Estate Regulation Bill 2023, which has been undergoing public participation, proposes a regulatory framework that subjects property developers and land trading companies to strict disclosure, transparency, and purchasers’ indemnification obligations.

Those who do not comply will be subjected to hefty penalties. Ideally, the Bill should help to discourage rogue actors from engaging in fraudulent transactions.

But rather than solve the problems afflicting the sector, some stakeholders hold the view that the introduction of another regulatory measure will create confusion, increase bureaucracy, and will hinder growth within the sector.

Kenneth Luusa, Chairman of the Kenya Property Developers Association (KPDA), says the proposed Real Estate Regulation Bill 2023 seeks to create a new regulatory legislation in an already overburdened real sector.

“A developer has to go through so many processes and approval from numerous ministries, departments and agencies. They currently amount to over 13 institutions,” says Luusa.

Rather than introduce new legislation, Luusa says what needs to be done is to make the existing laws work by fully implementing them, as subjecting developers to a new regulatory authority will create more bottlenecks for them.

“There is a need to tame the operations of land-buying companies and property developers to safeguard the interests of buyers from fraudsters. But the proposed Bill could potentially undermine existing regulatory mechanisms,” notes Luusa.

For instance, contrary to the Bill, there already exists a framework for project registration that is overseen by the National Construction Authority (NCA).

The county governments also perform various regulatory roles in the built environment through zoning and development control mechanisms.

“These pre-existing structures already contribute to the robust regulation of the real estate sector, emphasising the need for coherence and synergy in any proposed regulatory reforms,” notes Luusa.

Gikonyo Gitonga, a director at KPDA, says that there are enough laws to protect buyers from rogue developers even for off-plan projects and introducing another set of laws and regulatory bodies will only just increase the cost of doing business.

To avoid becoming a victim of fraud, he advises that any buyer agreeing to buy a house off-plan should do due diligence on the developer and sign a contract.

This makes it easier to prosecute a case if the seller fails to deliver the house or the title deed.

“All actors are protected by a contract. Any developer who fails to deliver is in breach of contract which can be dealt with in a civil case.

Real estate

Some stakeholders in the real estate sector are of the view that the proposed Bill could potentially undermine existing regulatory mechanisms.

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The other scenario is a developer who is just a con. For such a case, the question is what will a regulatory body do differently to stop them from embezzling funds?” Posed Gitonga.

Besides KPDA, other stakeholder bodies such as the Estate Agents Registration Board (EARB) and the Institution of Surveyors of Kenya (ISK) have also called for a review of the Real Estate Regulation Bill 2023.

The Bill proposes to have the registered real estate agents regulated together with the property developers who build properties for sale and land-buying companies that subdivide land for sale.

The chairperson of the Estate Agents Registration Board, Eunice Macharia, says there needs to be a clear demarcation between the regulatory oversight of property developers and that of professional real estate agents and land-selling companies.

Segregation of regulatory functions will ensure a more focused and effective regulation tailored to the distinct roles and responsibilities within the real estate sector.

“Combining the regulation of developers, land selling companies and professional real estate agents, who are service providers to developers is unreasonable and in conflict with the smooth operation of the industry,” says Macharia.

According to her, developers and real estate agents adhere to different codes of conduct that call for distinct disciplinary mechanisms.

The requirements to be a developer or land trader are also different from those of a real estate agent.

Whereas with the requisite capital, one can qualify to be a developer, to be a qualified real estate agent, one needs to go through some form of training and gain experience to progress to a higher level of practice.

“The professional real estate agency is a distinct specialisation that requires training, practice and competence, with the universities and colleges producing over 300 real estate graduates annually,” says Macharia.

More than just brokerage or facilitating selling and letting of property, estate agency encompasses property and facilities management, retail management, feasibility studies, among other disciplines.

“The proposed Bill adopts a very narrow view of the estate agent, mainly as the person who offers for sale or let real estate projects. This only comprises one sub-sector of real estate agency, that is, brokerage. It tends to ignore the fact that real estate is a profession both in training and practice that goes beyond brokerage,” notes Macharia.

She says that the interests of real estate professionals and that of developers are not only distinct in training and practice, but also in objectives, therefore, regulating both groups under the same authority may lead to conflicts of interest and hinder effective regulation.

“Agents and developers represent diverse and sometimes conflicting interests. Agents represent the professional practice while developers are focused on maximising their profits. The processes of regulating the two calls for different processes and consideration and imposing a one-size-fits-all regulatory framework could fail,” notes Macharia.

The proposed Bill seeks to establish a real estate board tasked with establishing regulations governing the conduct of real estate agents and developers as well as set out the licensing requirements for real estate agents and projects.

The board shall also be responsible for maintaining a public database containing information on all registered and unregistered or illegitimate real estate agents and projects.

It shall appoint a registrar of real estate agents and projects, whose mandate shall be to oversee the registration and deregistration of real estate agents and development projects.

“Of concern is that this board will comprise non-professionals tasked with regulating professionals. Professionals all over are regulated by boards that mainly comprise professionals in the specific area of specialization. That is why they are called professional boards,” says Macharia.

She points out that real estate agents in Kenya are already registered and regulated by the Estate Agents Regulation Board, which is akin to other professional boards like BORAQS, Engineers’ Board, Land Surveyors’ Board, Medical Practitioners and Dentists Board that are comprised of professionals in their areas of expertise.

Real estate

There already exists a framework for project registration that is overseen by the National Construction Authority.

Photo credit: Shutterstock

There is therefore no need for introducing another board to regulate real estate professionals.

“It is imperative to note that despite there being a functional Estate Agents Board, there was no prior attempt to engage the board during the preparation of the bill either directly or through the line Ministry of Lands, Public Works, Housing and Urban Development. The Bill, therefore, came as a surprise to the board and the registered estate agents,” says Macharia.

The framework for regulation of estate agents is also stipulated under the Estate Agents Act Cap 533, which stands as a comprehensive framework for governing professional estate agents.

“The proposed Bill assumes the need for professional competence of real estate agents. All these are contained in the current Estate Agents Act, Chapter 533 of the Laws of Kenya, thus there is no vacuum,” says Macharia.

She recommends that the proposed Bill should be redrafted to concentrate on regulating property developers and land-buying companies and leave the regulation of professional real estate agents as currently contained in the Estate Agents Act, Cap 533.

Maintaining this legislation will uphold established standards and safeguards within the realm of real estate agency practices.

“The proposed Bill is inferior to the already existing regulatory framework for estate agents that only requires minimal amendments. The board together with the Ministry of Lands has already initiated the processes of carrying out the requisite amendments to the Estate Agents Act,” notes Macharia.

EARB, KPDA, ISK and other industry stakeholders recently had a forum with the standing committee on land, environment and natural resources to table their memoranda on the Real Estate Regulation Bill, 2023.

Present at the forum was Lands Cabinet Secretary Alice Wahome who committed to have the current Bill withdrawn and provide a more enhanced and refined one within a 60-day timeframe.

“The ministry committed to take up regulation of especially the off-plan developers and come up with an enhanced bill that has input from all the stakeholders. Some of the proposals in the Bill were not coming from a good place. Many stakeholders were also not engaged in the development of the Bill,” notes Macharia.

Because it had little stakeholder engagement, Macharia says the Bill focuses on a very narrow area of property development, mainly off-plan, but there is so much more to construction, there are other developers who are not necessarily engaging in off-plan property transactions.

“We understand that there are some challenges, but there is no need of introducing a bad Bill, it’s better to take a longer time to formulate the regulation but make sure that all the stakeholders are involved,” notes Macharia.

Off-plan projects have been an area of great concern, because unscrupulous developers and land trading companies have found it to be an easy way to swindle buyers, especially those who reside in the diaspora.

“Some people prepare very nice proposals, present them to people in the diaspora, and promise to deliver projects within a certain timeline. Then because the project is only on paper, with no form of accountability, you find someone does three-quarters, the project stalls and they go under with banks’ money and purchasers’ deposits, but nothing happens to them,” notes Macharia.

This has also been witnessed with land-buying companies who have created schemes to defraud the public such as promising them cheap parcels of land around the country but failing to deliver title deeds to their buyers, years after the parcels were subdivided or creating illegal land registries in their offices to transact such parcels.

“That is an area that needs to be addressed but the people who are doing it cannot be the same developers or land trading companies. We need someone from the outside, such as the ministry, which can say this is how we should do it, this is how we can create the safeguards for purchaser’s money,” says Macharia.