Capital gains tax to hit housing most

Home Afrika chief executive Njoroge Ng’ang’a (left), Ministry of Lands, Housing and Urban Development PS Mariamu El Maawy (center) and Home Afrika chairman Lee Karuri at a past event. Mr Ng'ang'a said the introduction of five per cent tax on earnings made in properties will push house ownership further out of reach of most Kenyans. FILE PHOTO | NATION MEDIA GROUP 

In Summary

• “People have to plan better. It is obviously going to make properties more expensive because sellers will factor in this tax. Turnover may slowdown,” he said.
• “The implication will be quite significant although the rate they want to apply is five per cent. There is some relief as far as the rate is concerned,” said Mr Ng’ang’a.
• On Wednesday, Members of Parliament voted to introduce a five per cent capital gains tax on the value of transactions, from January 1, 2015.

By JOSHUA MASINDE
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Introduction of five per cent tax on earnings made in properties will push house ownership further out of reach of most Kenyans.

Speaking to Nation in an interview, the chief executive officer of listed firm Home Afrika, Mr Njoroge Ng’ang’a, said property developers will pass on the capital gains tax to buyers, which will dampen home ownership. 

“People have to plan better. It is obviously going to make properties more expensive because sellers will factor in this tax. Turnover may slowdown,” he said.

The only relief, he added, is that the proposed five per cent is not as high as had been thought.

“The implication will be quite significant although the rate they want to apply is five per cent. There is some relief as far as the rate is concerned,” said Mr Ng’ang’a.

According to Mr Daniel Ojijo, chief executive officer of real estate firm Mentor Group, houses will become more expensive and there will be a proliferation of informal settlements.

SECTOR TO SUFFER AGAIN

He said the cost of land, sand, steel, cement and finance had gone up.

“When this tax is imposed, everybody involved in property sales will bear it. What we need are incentives from the government and not disincentives like this one,” Mr Ojijo said.

On Wednesday, Members of Parliament voted to introduce a five per cent capital gains tax on the value of transactions, from January 1, 2015.

Mr Ng’ang’a further said the major impact will be on small developers and other developers to whom property is not their core business. The additional cost may run them out of business, or lead to consolidation to create a large mass which can absorb the tax.

“You may begin to see some consolidation, such that smaller developers begin looking for large scale property developers. Not everyone will be in the business of developing, so there will be a big role for larger developers,” Mr Ng’ang’a said.

The property developer announced a 72 per cent decline in after-tax profit in the first six months of 2014 to Sh42.9 million, from Sh155.5 million, due to doubling of the cost of sales.

Cost of sales rose to Sh326 million in the first half of 2014, compared with Sh167 million in a similar period in 2013.