10/05/2020
Types of Fees Involved In Buying Property In Kenya
Housing (shelter) is ranked as the most important basic needs according to Abraham Maslow hierarchy of human needs. Ownership of a property is one of the most desired goals in life. The type of property may range from an arable piece of land for building a home or a classy apartment in urban suburbs at least before one retires.
Other than the purchase price at the close of the property sale deal, there are numerous other not-so-obvious costs that may cost you a lifetime. Besides not all property buyers can afford the luxury of owning property for cash.
1. Legal fees.
This refers to the fees by the notary public (commonly referred as the lawyer) for doing two things. First, being to offer you the professional sale agreement document that ensures your rights are safeguarded. It is recommended that the sale agreement fee be Ksh 3,000 for agreements of Ksh 3,000 and below. Further for agreements of over Ksh 1 million the lawyer requires Ksh 8,000. Most times the lawyers demand for a figure way beyond this. The second amount relates to fees for facilitating the transfer i.e. executing the consent to transfer. In the case of a bank loan to boost your finances the lawyer will again execute the consent to charge your title documents to cover the loan. This amount can be another fortune since some lawyers can charge even Ksh 100,000 for a loan of Ksh 1,000,000. At this point you need to be keen to calculate the overall cost of funds to evaluate the cost effectiveness. When more than one title deed is involved, the cost goes up since their documents are executed separately. Have some time with the notary public/lawyer to negotiate on the legal fees and ensure you arrive at a written fee since there are some unscrupulous middlemen that may cause the fees to go up. The most common scenario is where the buyer bears the cost of the transfer and charging but be keen to see how the terms are put in the sale agreement. As a buyer request that the sale agreement fees be apportioned equally between the two of you. The speed with which the lawyer executes is very important and you may ask for a list of lawyers and negotiate with them seeking assurance as to their speed of ex*****on in addition to the cost charged.
2. Valuation fees.
In the case of a bank loan, the lending bank may utilize the services of an independent valuer to estimate both the market value of the property. Don’t just leave the bank to dictate the valuer but rather ask for a list of valuers in the bank’s panel and then negotiate with them to get the one who charges the optimum but delivers the valuation report on time. There are some valuers who may be cheap but then take forever to get a report. Speed is vital as it may cause you to lose property that you had began to buy and probably even lose the deposit you had paid. The agency has the choice when signing the mandate to sell its commission to the seller (in this case, it is included in the selling price) or the buyer.
3. Agency fees.
These are fees that you get charged by the person who was either seeking a buyer or a seller on your behalf. Ensure that you arrive at a fee of what you will pay and if possible have some written agreement to safeguard against unscrupulous ‘brokers’. As you are aware the Kenyan space is filled with many greed y brokers who can overcharge you especially when they feel like you are getting too much money or property at a go. In most of the cases it is the seller who pays the ‘broker(s)’.
4. Mortgage fees.
When the buyer is financing the property purchase through a bank loan there are a myriad of bank costs to care about. These are:
Interest rate: Calculate all the interest involved for the full loan term. Remember given the regulation of interest rates there may be upward movements in the interest rates that cause the loan to extend even beyond the agreed loan repayment duration.
Loan processing fees or loan application fees. These range depending on the financial institution. However they are commonly in the range of 0.5% to 5% in Kenya.
Ancillary costs. These range from personal contribution to the purchase price which depends with the financial institution and can go up to 50% of the forced sale value of the property. Note: the contribution is not based on the agreed price but on the actual value of property. Insurance of the subject property is another incidental cost that can go up depending on the number of years involved. Insurance is a specific rate per year. Some institutions also charge life insurance when individuals are borrowing loan facilities. This safeguards the loan facility in the case of death or permanent disability for some levels of loans.
5. Stamp duty.
This figure is collected by the Ministry of Lands on the behalf of Kenya Revenue Authority. It usually ranges from 2% to 4% of the value of the property depending on the type of land i.e. commercial or agricultural property, leasehold or freehold property.
6. Land rate and land rent.
These are annual fees levied by the local government based on the location and value of the property.
When buying property organize to have the bank assist you with capitalizing some of the fees like insurance and legal fees into your loan so that you can pay in installments.
