Idle Land Taxation Policy

By Cytonn Investments / November 15, 2019 | 4:53 am

Land remains arguably one of the most sought after resources in the country. Its scarcity and wide range of use make it a valuable asset to farmers, businesses and real estate developers.

Over time the country has continued to record significant land value appreciation and according to Cytonn Research, land prices have been growing at a 6-year CAGR of 17.0 percent, fuelled by the continued demand. Despite the high demand, not all land resource that has been purchased has been well-utilized.

In fact, a majority of the buyers are speculators who opt to hold onto it for extended periods of time, awaiting to reap from the increased value in the future. This has thus resulted in the presence of very prime but unutilized land countrywide, and hence the term “idle land”.

As one would guess, idle land refers to any registered parcel of land that has not been used (as opposed to lying fallow) for a considerable period of time.

Currently, the Government of Kenya does not have any law dictating timelines within which a landowner should put his or her land to use. This has thus resulted in speedy growth of the amount of idle land especially in areas set for infrastructural improvement, as speculators rush to acquire and hoard the land, awaiting to gain from appreciation.

As part of the land policy reforms discussions last year, the Government through the Ministry of Land has included the idle land policy that aims to introduce a progressive taxation system to discourage speculative hoarding of land. While there is still no mention of the chargeable tax, such reforms will result in individuals or corporates with large tracts either being forced to either put it into use or lease it out, failure to which they will be charged a tax levy.

The policy will also result in increased revenue for the County Governments who will benefit from the tax on idle land.

For the real estate sector, the tax policy is bound to discourage the hoarding of development class land and thus balancing off the high cost of land. In 2017, speculation of the growth of Juja and Ruaka towns due to infrastructural improvement i.e. the construction of Thika road and the Northern bypass, respectively, led to annual appreciation of 8.7 percent and 4.3 percent in the respective areas.

Land prices have continued to scale up due to speculation and the scarcity of the resource, thus making it unaffordable to prospective property owners. Thus, the introduction of the policy is expected to prompt most landowners, especially those with large parcels of land, to sell or lease it off rather than bearing the tax burden. This may enhance the availability of development land and result in stable land values. With this, the real estate sector is bound to record increased development activities. This does not necessarily mean that we will experience a drastic surge of construction of property, since the availability of land cannot solely drive the real estate sector. Other factors necessary for the growth of the real estate sector to occur include sufficient infrastructure which opens up areas for development, availability of financing and fast and efficient building approval processes.