Real estate experts have cautioned investors to take ‘careful consideration’ of cultural, regulatory and tax matters in the region before sinking billions in the sector.
This, they said, will help investors to proactively structure their investment.
The remarks were made during a meeting between TARRA Agility Africa, a boutique international tax, legal and accounting advisory firm, and the Kenya Association of Property Developers (KPDA).
TARRA’s Co-Founder and Tax Partner Robert Mabwa urged developers and financiers to take up a proactive business structuring approach to optimise their tax position since it will help determine how profits are extracted.
“Knowing when to recognise revenue and declare tax is crucial for a property developer,” Mr Mabwa said.
He pointed out that managing a project’s competing cash needs such as construction costs, overheads, and taxes is key.
For instance, he said, when funding a project through foreign debt, a deemed interest challenge might arise.
“This happens when withholding tax is demanded on an interest-free loan that has been advanced to a Kenyan company from a foreign lender. This payment is a net cash outflow to the business,” he explained.
He cautioned that an investor ought to be careful to align their financial statements with the definitions of debt and equity under tax laws, “to ensure that these incomes are not re-characterised and taxed improperly.”
During the meeting, experts said Kenya’s real estate ecosystem mirrors the landscape on the continent, and in many ways rivals other locations like Lagos, Accra, Johannesburg, Cairo, Casablanca, Lusaka, Abidjan and Maputo.
Meanwhile, property developers are suffering from rising borrowing costs, a trend that risks hurting their profits or slowing sales if they pass the charges to customers, according to Knight Frank’s first-half report for 2023.