Housing Levy in Kenya
Housing levy is currently a trending topic among Kenyans. The current government aims at delivering 200,000 units every year with a purchase range starting at Ksh1 million and also stretching out to Ksh5 million or more, depending on the size.
Data by the National Housing Corporation shows that the affordable housing deficit currently stands at 2 million units, growing by about 200,000 units per annum. While the market seems to have a constant supply on high-end buildings, the supply of housing in the low and middle-income segment especially in satellite towns is still low. According to the World Bank, 61 percent of urban households live in slums in Kenya, this means that as a country we have a long way to go in the provision of housing.
In this blog, we are going to discuss a number of these that will help our readers understand the housing levy better
- Housing levy meaning
- Origin of the housing levy
- Affordable Housing Relief
What is Housing Levy?
By definition, the housing levy is a compulsory contribution done by an employer and also employees toward home ownership. The fund intends to complement governments’ efforts towards achieving affordable housing for Kenyan Citizens. Moreover, the proposed changes to the Employment Act allow deductions of three percent from employees’ basic pay to help fund President William Ruto’s ambitious plan to build low-cost homes.
Once the funds are collected, they are used in financing affordable housing units which are later allocated to beneficiaries in different categories. The current bill, proposed changes in the Employment Act compelling employees to pay 3% of their basic pay to fund low-cost housing. The deductions will however not exceed Ksh 5,000.
Is Housing Levy a Tax?
One common question currently among Kenyans is whether a housing levy is a tax. Well, depending on how you choose to look at it, you may consider it as a tax because if the bill passes it will be a mandatory deduction.
Yes, in Kenya, the housing levy is considered a tax. The Kenyan government introduced the Housing Fund Levy, commonly referred to as the housing levy, through the Finance Act of 2018.Fast forward to 2023, the debate is still ongoing, and Kenyans are actively contributing towards the housing levy and participating in the low-cost housing program.
Origin of Housing Levy
Amendments to the Employment Act of 2007 introduced the Fund’s contributions, specifically in the Finance Act of 2018. The regulations require both employers and employees to contribute 1.5% of the employee’s monthly basic salary to the Fund.However, the combined contribution should not exceed Kshs. 5,000 per month. Individuals who are not formally employed or non-citizens have the option to contribute a minimum of Kshs. 200 per month. Additionally, the Housing Regulations, as published in the gazette, allow for contributions beyond the statutory minimum. Each year, the National Housing Corporation (NHC) is required to specify the applicable return on members’ contributions.
Fast forward to 2023, the debate is still ongoing, and Kenyans are actively contributing towards the housing levy and participating in the low-cost housing program.
Benefits of Housing Levy to Employees
The Finance Act outlines several benefits that employees who contribute to the Fund can avail themselves of, including:
- Access to financing for purchasing a home through the affordable housing scheme. The interest rate for this financing is up to 7% per annum, calculated on a reducing balance basis. It’s important to note that the NHC may revise this interest rate periodically.
- Employees who do not qualify for affordable housing have the option to transfer their benefits to a pension scheme or to a registered individual within the affordable housing scheme, such as their spouse or children.
- Cash distributions are also available to eligible employees.
In conclusion, there are still Kenyans who prefer building a house on their own after buying a plot of land which is still okay. Whichever way you choose it is the dream and desire of every Kenyan to own a place to call home whichever route they choose to use.
Buy a Plot and Build or The Housing Fund?
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Make sure you subscribe and turn on the notification bell, so that you are the first one to learn practical advice and real-life case studies. Now, let’s talk real estate investing! Our discussion today is comparison between buying a plot and building or owning a house through the housing fund
Housing fund is currently a trending topic among Kenyans. What is your opinion? You can share in the comments section.
The current government aims at delivering 200,000 units every year to the low and also medium income earners to address the housing need.
What is affordable housing?
Local housing solutions has a satisfactory definition for affordable housing. It is housing that a household can pay for, while being able to afford basic necessities. These include food, transportation and health care. Therefore, the term affordable varies from one person to another.
In addition, housing is known as affordable when it consumes not more than 30 percent of a household’s income.
How the housing fund will work as per the proposed bill
The National Assembly Finance and Planning Committee recommended amending the Finance Bill 2023 in response to feedback from Kenyans. They proposed converting the housing fund into a levy. This involved reducing the percentage from 3% to 1.5%, meaning that they won’t refund the money after collection. Additionally, the levy will be 1.5% of the total earnings. It will not cap at 2,500 per person or 5,000 when the employer contributes.
In a nutshell, specific entities allocate levies for particular purposes and do not provide refunds. For example, they impose the export levy, the railway development levy, and the roads maintenance levy.
Comparison between buying a plot and building versus the housing fund
| Buy a Plot and Build | The Housing Fund | |
| Process | When you buy your own plot, you determine when and also how to build your house | Kenyans contribute to the fund to be eligible for the houses through the Affordable Housing Programme. |
| Flexibility in terms of choice | You can select a plot based on the price you can afford and also select your ideal payment plan | If the Finance Bill is passes each employee contributes1.5% as per their earnings towards home ownership. |
| House designs | You have the liberty to select where your house will be located and how it will be designed | The houses will be located in pre-determined locations and predetermined designs. |
| Motivating factor | It is a personalized goal for an individual and family towards home ownership | The housing fund is a national saving, where as a country, Kenyans put money together towards housing |
Inheriting the property | Your dependants can inherit the already purchased land or the built house | Multi-generational fund. From the amended bill the contribution is for every working Kenyan towards affordable housing scheme |
| Contribution method | This method is done through own savings, financing etc. at an individual or family capacity | Both the employer and employee contribute towards home ownership |
| Customization | You have the ability to customize the house to your own needs, specifications & preferences. | The designs and location are in areas designated for affordable housing |
| Compromise | You have the liberty to find land in your ideal location and build your preferred dream home | Under Housing Fund mode of house ownership, you could end up compromising. You can get a perfect house but not in a preferred location or vice versa. |
| Overall benefit | Helps individuals realize their own home ownership dreams | Increases the supply of affordable housing across the country |
| Incentives / Tax Benefits | Real estate companies sell you the land where you choose to build on your own or contact a construction company | Creates incentives for private developers: lower land and construction costs, tax exemptions. It also guaranteed off-take agreements with the government |
| Ownership timelines | You can determine the duration either 6 months, 1 year, 2 years or more | Depends with the housing program being rolled out in various parts and the houses allocation criteria |
| Access to Financing | You can take a loan from any financial institution towards your home ownership | Those contributing have the benefit of accessing mortgages with lower interest rates and longer repayment periods |
Conclusion
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In conclusion, I look forward to seeing you in the next real estate video. Till then, keep learning, keep growing and keep investing in real estate.