Real estate market activity is expected to touch a new low as the government moves to restore order in the chaotic land market with a freeze on transactions.
Lands minister James Orengo has imposed a blanket freeze on public land deals to await the establishment of a National Lands Commission (NLC) as provided for in the Constitution.
“All public land allocation, renewal and grants of all types of leases, charging and mortgaging of parastatal land, compulsory acquisition by State and dealing in community and trust land are suspended till the commission is established,” Mr Orengo said in a memo to senior staff with the stamp of urgency.
“This obviously relates to public land and assets including those belonging to local authorities and other state organs, state corporations and other statutory bodies.” Mr Orengo issued the directive in a memo to all heads of departments in the Ministry of Lands, citing a recent Cabinet decision on the matter.
The directive means that the majority of those who own land in Kenyan towns under leasehold terms must wait for the commission to be formed commission before they can renew their leases. Those who have applied for grants of new leases for purposes of commercial, residential or industrial development must also wait for the commission, effectively freezing activity in a segment of the real estate market that has been the biggest driver of growth.
Mr Orengo gave no indication as to when the commission will be operational but legal experts estimate that it could take up to six months because Parliament — which reconvenes next week — is yet to pass the relevant laws for its establishment.
The National Lands Commission Bill is among those that MPs must pass before the February 27 constitutional deadline but it could take another four months to recruit commissioners and another two months to set up the relevant structures.
The freeze on public land transactions is seen to be particularly important in an election year given the many mega land scandals that have occurred in the past as politicians cut illegal deals in search of campaign funds.
The commission is the agency that has the legal mandate to deal in public land according to the August 2010 Constitution.
“These are constitutional fundamentals that cannot be changed at all,” said Lands PS Dorothy Angote who declined to discuss the internal memo.
Mr Orengo’s memo dated January 23, 2012 has effectively put a lid on any transaction, including use of such land as security for loans, a move likely to adversely affect the operations of parastatals and firms with government-granted lease land (mostly in Nairobi and its environs).
The public pensions services provider, the National Social Security Fund (NSSF) tops the list of state-owned institutions that are expected to suffer operational hiccups from Mr Orengo’s directive.
NSSF has in the recent past been seeking to sell View Park and Hazina Towers on Uhuru Highway besides a prime 10-acre piece in Mavoko Municipality.
The Postal Corporation of Kenya was one of the earliest victims of the Cabinet decision.
The corporation was last month forced to cancel the auction of a five-acre plot in the Kilimani area of Nairobi despite its urgent need for cash to pay retrenched workers their severance benefits.
The changes in land management have dealt a major blow to politicians and bureaucrats seeking to cash in on public land disposal for rent-seeking.
The National Land Commission will govern the sector through the Land Bill and the Land Registration Bill, 2011 which are rooted in Chapter 68 of the Constitution.
Both legislations must be enacted by February 27 or 18 months after the coming into force of the Constitution and are expected to be published this week.
Some players in the lands sector are, however, skeptical of the changes citing ugly precedents in election years.
Past elections have heightened the plunder of public land, notably in Karura and Mau forests and it remains to be seen whether President Kibaki, who is ending his tenure at State House this year, will cut off a key source of campaign funds.
“I hope there will be specific performance on this one. Unless there is goodwill it might not work,” said Ibrahim Mwathane, an expert on land matters.
Besides affecting several property owners in Nairobi, the freeze could also foment trouble for companies such as East African Portland Cement whose board has declared that the company is not a parastatal and could, therefore, seek to sell some assets such as the 18,000 acres of land on the premise that it is not affected by the freeze.
However, other firms are firmly aware of implications of dealing in land during this period and have acted with caution in recent months.
“Although Post-Master General Hussein Ali did not get any direct instructions on the matter, he felt going on with the sale would have been misconstrued that he was raising election funds,” said a source well versed with the postal corporation transaction which was stopped on the day a firm obtained a court order seeking the same action for a completely different reason.
President Kibaki and Prime Minister Raila Odinga had promised Bharti Airtel International the land for Sh543 million for setting up its African headquarters before attorney-general Githu Muigai wrote an opinion against a direct sale.
Apart from public institutions, Mr Orengo’s directive has raised anxiety among private property owners who have recently applied for renewals of their leases in readiness for multi-million shilling transactions on their property.
Land leased by government and its agencies has been interpreted as public land under the Orengo memo.
In the last few months there has been a flurry of activity as lease holders especially around Westlands, Nairobi, sought to extend their holding period.
Banks are set to bear some of the brunt as the land in question can no longer be charged or mortgaged.
But the fact that the caveat is temporary and coming at a low borrowing season due to high interest rates, gives banks some comfort.
“The order can only affect those entities processing loans as they now have to put their plans on hold. Those affected might chose to give temporary collateral until the matter is resolved whereupon they can substitute it,” said Kenya Bankers Association executive director Habil Olaka.