Property owners are set for a relief after the government proposed to cap interest that they pay for defaulting on rates across the 47 counties.
Interest on defaulted rates will not exceed the prevailing Central Bank of Kenya (CBK) lending rate in proposed changes to the government-backed National Rating Bill of 2022. The current Central Bank Rate (CBR) is 12 percent.
Currently, the interest on defaulted property rates is set by the respective county assemblies or the County Executive in charge of lands in line with the Rating Acts which were adopted in 2014. Others like Kiambu County charge interest at a rate of 1.5 percent.
Property owners and businesses have increasingly found it hard to settle rates, as evidenced by the growing number of counties who perennially opt to waive penalties and interest in a bid to attract firms and individuals to clear the dues.
“Where County Executive Committee member charges simple interest on property rates, the simple interest shall not exceed the prevailing Central Bank rate,” the Bill says.
Property owners who default will however face steeper interest if CBK increases the base lending rate.
The amendment was tabled before the house on Wednesday as lawmakers move to speed up further changes to the Bill that seeks to revoke the Rating Acts that form the basis of setting and collecting property rates across the 47 counties.
Passing of the National Rating Bill of 2022 will compel counties to establish a uniform legislative framework to levy rates on land and buildings within their jurisdiction.
Most of the counties rely on their respective Rating Acts of 2014 to set rates, penalties and interest for defaults and enforce collection of the dues.
The Bill will also force counties to review their property valuation rolls every five years to ensure that they do not lose out on the appreciation of properties in the market.
Capping of the interest rate is seen as critical to saving businesses that at times struggle to pay the rate mainly due to poor business or other unseen aspects, for example the Coronavirus pandemic that crippled businesses four years ago.
Property rates remain a major revenue source for counties but have been slowed down by high default rates, with a joint report by World Bank and CRA showing that the current annual collections on property rates is just 64 percent of the potential.
The 47 counties collect a combined Sh14 billion on average every financial year against a potential of Sh35.8 billion.
Counties have over the years been forced to issue waivers on penalties and interest for unpaid rates, as property owners choke on skyrocketing bills due to accumulated interest.
Besides steep interest rates, counties are also allowed to seize and auction the assets of property owners who default on their rates.
Counties also take over the property of defaulters and directly receive rent payments from the tenants, in yet another punitive move used to enforce settlement of the dues.
