Property service charges draw ire of homeowners

IN SUMMARY

• Homeowners have found the inclusion of these charges in property purchase agreements unacceptable leading to fierce court battles in some cases.
• In Nairobi, for instance, monthly service charges for residential houses range from Sh3,000 to Sh50,000 depending on location and the range of services offered.
• The fees become a key driver of rent inflation by forcing those buying houses to lease out to charge higher premiums in pursuit of reasonable profit margins.

Kenya’s homebuyers are grappling with the ever-rising and arbitrary service charges that have significantly raised the cost of owning property and made nonsense of their efforts to escape the burden of paying rents.

Property developers say the charges go towards meeting the cost of services such as security, backup electricity, water, cleaning, waste management and health clubs. But homeowners have found the inclusion of these charges in property purchase agreements unacceptable leading to fierce court battles in some cases.

Homeowners are particularly upset by the ease with which the developers set and increase the fees that they continue to levy long after the houses have been sold to them. In Nairobi, for instance, monthly service charges for residential houses range from Sh3,000 to Sh50,000 depending on location and the range of services offered.

Commercial office space is currently priced at an average Sh20 per square foot in the city and can rise up to Sh45 per square foot with the provision of common marketing services for the tenants. A service charge of Sh30,000 per month held constant for 20 years — the typical lifespan of a mortgage — amounts to Sh7.2 million (enough to buy another unit) and continues to accumulate for a lifetime.

The fees also become a key driver of rent inflation by forcing those buying houses to lease out to charge higher premiums in pursuit of reasonable profit margins.

Retirees, whose earnings fall substantially over time, are among the demographics hit hardest by the high service charges that remain constant or rise with time.

Failure to pay the monthly fees may lead to termination of services like garbage collection, denial of access to the premises, and the posting of public notices aimed at embarrassing the tenant or home owner.

“Service charges are a sensitive issue that mainly arise from weak laws and consumer ignorance. Most people sign contracts committing to pay these opaque fees without questioning them,” said Stephen Mutoro, the CEO of Kenya Alliance of Residents Association (KARA).

“We have received many complaints over these charges in major towns. Some home owners have gone to court and kicked out property developers who insist on managing the properties long after selling them out,” he said.

The problem appears to be most widespread in the commercial and middle income residential properties market where service charges amount to at least a quarter of the rental fees. Property managers say prospective home buyers should assess their ability to pay the service charges in perpetuity if their driving force is to significantly cut back on rent-like cash outflows.

“Service charges are not one-offs and should be a critical factor to consider when buying or renting a house,” said Victoria Ng’ang’a, a sales and letting agent at Dunhill Consulting, a property management firm.

Home owners and tenants have also fallen prey to profiteer developers who set arbitrary and exorbitant service charges in the densely populated gated communities pocketing millions of shillings in the process.

Ideally, property owners or residents should be the ones forming or hiring property managers – an arrangement that would allow them to peg the service charges based on the real costs of providing the shared amenities and share surpluses that may accrue from efficient management.

Mr Mutoro says most developers have undermined such arrangements by crafting sale agreements that give them the exclusive mandate of managing properties they have sold.

“We have seen developers write contracts that preserve their ownership of common areas in gated communities and to offer property management services,” he said
.Buyers are usually forced to sign the skewed contracts for an opportunity to purchase the houses setting themselves up for mandatory payment of the hefty fees.

In Nairobi, small-time developers with one or two major projects have proved to be the most notorious users of these contracts that offer them the opportunity to siphon money from their clients long after they have sold the houses.

“Serious developers are often keen on selling the houses and moving on to next project. It doesn’t make sense to stick around chasing small money from property management,” said Ben Woodhams, the managing director of Knight Frank a property management firm. Mr Woodhams said that estates with a large number of units should have lower service charges because of economies of scale.

Property developers say the proliferation of charges arises from the failure of government and related agencies to deliver basic services such as water, electricity, solid waste management, and security.
This has spurred private investment in these services in major towns such as Nairobi, Kisumu, and Mombasa leading to a general inflation of costs.

Besides, the continued rise in affluence among Kenya’s middle class has pushed up demand for cosier lifestyles that come with luxuries like private cinema halls, well-tended gardens, and swimming pools for which the developers charge additional fees besides the purchase prices.

The charges have become a source of friction between property buyers and the developers in many middle income estates who unlike their counterparts in upmarket neighbourhoods are often little informed about them.

Mr Woodhams reckons that the vast wealth of home owners in the affluent neighbourhoods has been the main driver of the charges besides the fact that most multinationals and embassies pick up the tab for expatriates.

“Expatriates usually prefer that service charges are bundled together with rent so that they can claim the whole amount from their employers,” Mr Woodhams said, adding that Knight Frank will soon introduce service charges as a distinct bill for the properties it manages.

vjuma@ke.nationmedia.com