ESTATE AGENCY THE KENYA TALE: DISSECTING THE PROBLEM AREAS

By Wambui Babu

INTRODUCTION

 

The Real Estate Act was last revised in 2012, however the amendments made failed to capture the real issues facing the real estate market from the premise being meeting the needs of the new age technology  and the fast growing real estate sector necessitated by the population growth, mitigating fraudulent land transactions and the versatility of the sector.

It is those issues that are a necessity to be addressed in order to efficiently regulate the market with a view of the Government finding an opportunity to raise revenue from the very expansive real estate market that occupies a large sector in the economy that attracts colossal capital intensive investments. In  comparison with other economies that have had such a fast paced growth in the real estate market, they have addressed the matters through enactment of new laws or revision of existing laws to be in tandem with the digital age technology and fast growing market, case and point Dubai and India.

 

THE PROBLEM QUESTIONS

1. Does the Estate Agents Registration Board really regulate the market efficiently?
2. What role has the board played this far to regulate the market especially dealing with rogue agents or self-proclaimed agents and land brokers?
3. The market is flooded by unregistered estate agents who are not duly registered as provided for in the law, how has the board or the enforcing agent mandated with this role to dealt with the issue?
4. Is there need or room for encompassing other qualified persons other than those provided for in the Act to join the market?
5. Is there a need to have a Government oriented curriculum that persons desirous to join the profession can study?
6. Would establishing of a professional body that regulates and collects practicing fees be viable?
7. Should the commissions earned by the agents be taxed? Could this be a possible revenue collection point for the Government?
8. Enforcement: Need for a Disciplinary Tribunal to handle complaints against REAs?
9. Need for a Professional Indemnity cover and Bond equivalent to the value of the assignment being handled

 

PROPOSED CONSIDERATIONS TO THE LAW

1. Does the Estate Agents Registration Board really regulate the market efficiently?

The Estate Agents Board has not been visible in the sector automatically leading to the inefficiency of the smooth running of the sector. The board needs to whip the members to act within certain parameters and to adhere to certain regulations, just like the many other professional bodies do, even to the extent of deregistering those that do not conform to the practice procedures.

The EARB needs to come up with modern practice standards in Real Estate practice and the proceed to do an assessment and re-evaluation of all registered REA to ensure they are in conformity in order to weed out the quacks in the profession.

For instance, a quick look at the List of Registered members indicates that some of the licensed practitioners are not degree holders while some have not done the requisite course (Estate Agency & Property Management) in order to be licensed.

Further, the EARB has no touch with the modern trend by enhancing its online visibility as the list of board members and a way of reporting for the public, including the physical location is not available in the website.

2. What role has the board played this far to regulate the market especially dealing with rogue agents or self-proclaimed agents and land brokers?

Lack of visibility of the Board has necessitated rogue unlicensed agents/brokers marketing and selling estates with no regulatory framework, that has cumulatively led to land matters being run haphazardly and ultimately this has led to con men accessing privileged and highly sensitive information on private, corporate and government information resulting to many fraudulent cases. This has also caused the rogue agents/brokers the opportunity to access the land records at the Ministry of Lands while scouting for unoccupied land and even cutting out the professionals like lawyers, surveyors, valuers etc from being able to conduct their work professionally.

3. The market is flooded by unregistered estate agents who are not duly registered as provided for in the law, how has the board or the enforcing agent mandated with this role to dealt with the issue?

As states in clause 1 above, due to the invisibility of the Estate Agents Board, there lucks a proper mechanism to deal with the unregistered agents/brokers. There is need for the law to address the matter foolhardy in order to firstly, regulate the market, secondly to thin out the rogue agents/brokers and con men and thirdly to have some much needed order in the sector which eventually will translate to the Ministry of Lands and Housing running smoothly because there is a track record of the persons licensed to do the work.

4. Is there need or room for encompassing other qualified persons other than those provided for in the Act to join the market?

The Estate Agents Act is very limited to certain professional backgrounds and further in the qualifications of the ideal persons that should be licensed. The need to broaden this spectrum is duly needed for various reasons but the paramount ones being; the market is huge and very versatile, the need to create jobs for the youth in a structured environment, the need to unconstraint the persons that can enter the industry and also as a means for government to expand on its revenue collection bracket.

 

5. Is there a need to have a Government oriented curriculum that persons desirous to join the profession can study?

This can be looked at in a two prong manner, first being for the purpose of achieving sanity in the sector that will automatically translate to smooth management of the Ministry of Lands and Housing which will have been brought about by having proper clarity of the persons mandated as licensed agents. Secondly, a curriculum that is government oriented will raise revenue for the government through course attendances. Further, having a regulatory body in the likes of the Law Society of Kenya or the Medical Practice Board that will be mandated to charge annual licenses, charges fines e.t.c. The approaches of revenue collection would be many in a more structured environment. There are also television shows that are mainly focus in the real estate market, this is also another perspective of revenue collection by having a provision compelling them to take out a license.  Additionally, there are all these real estate companies sprouting all over in the country that ought to be looked as an additional revenue source by paying a statutory fee to allow them to engage in the business as part of the regulation and accountability of who is running the said companies.

 

6. Would establishing of a professional body that regulates and collects practicing fees be viable?

To expound on clause 5 above, it is prudent to look at and benchmark with other countries like India, Dubai and more recently Canada that have established a REAL ESTATE REGULATORY AUTHORITY (RERA) to manage and regulate their markets more efficiently. It would be prudent for the government of Kenya to engage experts in the real estate industry to study or borrow from the cited markets to enable the Estate Agents Board run the market efficiently or perhaps think of establishing a Real Estate Authority of its own. Another direction would be to totally overhaul the current structure and enact new laws that will put the house in order.

7. Should the commissions earned by the agents be taxed? Could this be a possible revenue collection point for the Government?

Last but not least the agents earn commission mostly in huge sums but because the industry is not properly regulated most of them do not end up paying taxes from their earnings. This is would be a great opportunity for the Government to raise more revenue from this taxable bracket that is so much needed.

SUMMARY

RECOMMENDATIONS (BASED ON BENCHMARKING WITH INDIA & CANADA REAL ESTATE SECTOR)

1. Expand the scope & mandate of proposed RERA/EARB to register contractors before they start advertising or developing a project where the land exceeds 500 sq metres.

• This will increase visibility in the Real Estate sector to go beyond management and touch on construction & development which is a major aspect of the industry.
• Will help create an in interagency relationship with government agencies in the related filed e.g. National Construction Authority (NCA), Ministry of Lands & Housing, County Physical Planning Dept etc

2. Enforcement through stiffer penalties

• Punish failure by developers to register with RERA/EARB by imprisonment of through a fine of a certain percentage of the value of the project (affected parties can be given a grace period within which to register once the amendments come into effect)
• Failure by Developers to adhere to the approved project layout plans and structural designs; Guard against diversion from approved plans.

3. Modernification of the Real estate sector information systems

• Need for an online system for developers and agents to submit and upload project details including title documents, approved plans, licenses, consents, projected timeline, sale agreement executed by prospective offsite buyers etc.

4. Setting up of a Real Estate Appellate Tribunal

• Matters appealed from the RERA/EARB can be forwarded and heard in the tribunal.
• The tribunal can also adjudicate complaints against RERA/EARB by parties and give directions on the same

5. Provision for developers to deposit atleast fifty (50) percent of the project cost in a separate Project account to meet the project cost of constructions and development prior to recruiting prospective purchasers,

-This will guard against the practice of Realtors and Developers diverting the prospective buyers’ money to new projects resulting in delays and substandard construction.

 

6. Provision for a REA or developers not to accept a sum of ten (10) percent or more from a prospective buyers as advance payment for an apartment or plot without entering into a sale agreement.

 

AIM OF PROPOSED CHANGES

• To stabilize housing prices and lead to enhanced activity in the sector leading to more affordable housing units in the market.
• To weed out fake practitioners from the sector and avail legitimate opportunities to qualified and licensed ones.
• To define and protect the rights & duties of buyers, contractors, developers, REA and other players in the Real Estate sector.
• To provide and update punishment for offences committed in the Real estate sector.
• To raise revenue for the government through licensing and tax regime.
• To raise awareness to the public about the mandate of the RERA/EARB and increase visibility.

 

What the Real Estate (Amendment) Bill 2017 proposes

• Replacement of the term Estate Agent with “Real Estate Agent”
• Regulation of Real Estate Brokers by setting their registration, minimum qualifications and licensing requirements (pg 12-13)
• Increase of professional indemnity of REA from 200,000/- to 1million Kshs.
• It mandates the EARB to develop and publish a code of conduct regulating the REA profession
• The fine for breach of code of conduct or on conviction for an act or omission contrary to public interest has been raised from 5000/- to 1million.
• Provision on qualification for registration has been slightly amended but does not limit the minimum academic qualification to be a Degree. (allows diploma holders to be registered as REAs as long as they can secure membership to a professional institute described in section 13)