How Finance Bill will impact the housing sector

However, Kenya grapples with significant housing shortages, especially in urban areas where rapid population growth and rural-urban migration strain existing infrastructure. Informal settlements, with inadequate housing, basic amenities, are common.

The government is implementing policy and administrative reforms to lower the cost of construction and improve access to affordable housing finance while creating jobs and entrepreneurial opportunities for all Kenyans. 

These include structuring affordable long-term housing finance schemes, including a National Housing Fund and Cooperative Social Housing Schemes, that will guarantee the offtake of houses from developers as well the enactment of the Affordable Housing Levy and the Affordable Housing Act, 2024.

The Affordable Housing Act introduced a Levy at the rate of 1.5 percent on the gross income for persons not in employment or the gross salary of an employee with a matching contribution from the employer. It establishes the Affordable Housing Fund to de-risk investments and offer affordable finance, enhancing homeownership accessibility.

The Finance Bill 2024 proposes several amendments affecting housing. It removes affordable housing contribution relief but introduces tax deductions for payments under the Affordable Housing Act, resulting in a reduction in the taxpayers' tax burden. 

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Deductible interest payments on loans for residential premises construction or improvement are proposed to increase from Sh 300,000 to Sh 360,000 per annum, incentivising homeownership and stimulating economic growth through increased construction activity.

Another proposal is the deletion of Section 54 of the Affordable Housing Act which prevented owners of affordable housing units from selling their units without prior written consent of the Affordable Housing Board. 

If enacted, this will streamline property transactions, fostering a more fluid housing market. However, it may result in the abuse of the affordable housing scheme where some people acquire the houses cheaply and sell them in the open market for profit.

The Bill has, however, brought into the tax net the income of the National Housing Development Fund (NHDF) as well as amounts withdrawn from the NHDF to purchase a house by a contributor who is a first-time homeowner. 

These two proposals may hinder affordable housing accessibility, thereby undermining the constitutional provisions on accessibility to housing. The proposal to tax withdraws from the fund will negatively impact the government’s push to have potential homeowners start saving early in anticipation of owning a house in future.

Another proposal that may have an adverse effect on the housing sector is the introduction of value-added tax (VAT) on various financial services. If the proposal is adopted, it is expected that the cost of financial services, including mortgages, will rise leading to higher homeownership costs.

A positive proposal in the Bill for the housing sector is the removal of the excise duty rate on cement clinkers, which was at the higher of Sh1.5 per kilogramme or 10 percent of the value. Cement clinker is a raw material, used in the production of cement. The exemption of cement clinker from excise duty is expected to reduce the price of cement leading to enhanced construction activities.

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The Bill has also proposed to reduce the export and investment promotion levy on cement clinker from 17.5 percent to 10 percent of the customs value, a move that would further boost the construction industry.

Successive governments have prioritised housing as is evident in initiatives such as Kenya's Vision 2030 and the Big Four Agenda. Despite these efforts, challenges like financing, land access, and bureaucracy have hindered progress.

Under the current government regime, housing and settlement is one of the core pillars in the Bottom-Up Economic Transformation Agenda. Through the Affordable Housing Programme (AHP), the government targets to support the provision of at least 250,000 affordable houses to Kenyans every year.

Some of the Finance Bill proposals highlighted reflect the government's attempts to promote affordability, stimulate construction and streamline property transactions in the housing sector. The affordable housing initiatives, as evidenced by the AHP and legislative interventions, also signal a positive stance toward resolving the housing crisis. However, challenges persist, requiring continued implementation efforts to achieve housing rights for all Kenyans.

Esther Kithome is a Manager in Tax at KPMG Advisory Services Limited ([email protected]). The views and opinions are those of the author and do not necessarily represent the views and opinions of KPMG.