Financing (investment, rental, taxation)

Enact New / Draft Legislation

• Landlord and Tenant Bill 2021- Consider the reintroduction of the bill into parliament and to fast-track its enactment. Furthermore, rethink the overall theme of rent control as a regulatory tool.

Review of Existing Legislation / Processes

• Demand and supply-side tax incentives- Simplify access to the various tax incentives provided in law and guidelines

• Draft Affordable Housing Regulations 2024 – Fast track adoption of the same.

• Review the Retirement Benefits (Mortgage Loans) (Amendment) Regulations, 2020 - Noting that these Regulations were quashed by the High Court in Republic v National Assembly & 2 Others; Okoiti (Exparte); Retirement Benefits Authority (RBA) & 2 others (Interested Parties) (Judicial Review) (23 November 2022) (Judgement) due to a flawed legislation process characterised by lack of public participation; the impugned legislations should be re-introduced in parliament and the laid down legislative process followed including sufficient public participation and stakeholder engagement. Simplify processes for amending Trust Deeds and applications for transfer

• Review Housing Act 1953 / Housing Scheme Fund Regulations, 2018 (Legal Notice No. 238 of 2018)- Promote an equitable regulation that encourages savings for housing

• Reintroduce incentives for home ownership savings plans

• Stamp Duty – Reintroduction of the stamp duty exemption for REITs on property purchases.

Develop Regulations for Existing Legislation

• Income Tax Act- Push for publication of regulations that will formally exempt subsidiaries of real estate investment trusts (REITs) from income tax to accord with section 20(1)(c) of the Income Tax Act.

• Develop and apply standards for credit assessments of informal workers who are not salaried and have irregular income.

• Sacco Societies Act- Development of regulations to capture some gaps in the law governing the Guarantee Fund such as: documents needed by a member to lodge a claim; whether the compensation paid from the fund will take into account inflation arising as a result of protracted disputes before settlement/compensation; a gap on how to manage the funds in the Fund; create awareness on the Fund once established.

• Adoption of the Affordable Housing Regulations 2024 to give effect to the Affordable Housing Act.

Support Implementation of Existing Legislation

• Public Private Partnerships Act 2021 - Support the implementation and sharing of earnings

• Sacco Societies Act - Set up the Central Liquidity Fund in the Sacco subsector to promote inter-borrowing among Saccos, deal with potential illiquidity challenges and become part of the national payment system.

• Unclaimed Financial Assets Act 2011 (Amended through Finance Act 2022) - Promote utilisation of penalty waiver to increase surrendering of unclaimed assets to the Authority. Promote reunification of assets with the beneficiaries by creating awareness and reducing the complexities.

• Support greater refinancing of mortgages by KMRC by studying the blockages currently faced, and collecting and disseminating data on demand served and type of supply to understand market dynamics and affordability

• Support implementation of tenant purchase schemes as an alternative to mortgages

• Civil Servants (Housing Scheme Fund) Regulations, 2004- Understand low disbursement (1,321 loans over more than 15 years) and demand segmentation

Other non-legislative recommendations

1. Adopt a holistic approach to the macroeconomic environment in dealing with public policy issues such as public debt/borrowing. For instance, the lack of construction financing from local banks is partly due to poor offtake and the ease of investing in government paper at attractive and lower-risk returns compared to lending to housing;

2. Work to implement the various demand and supply side tax incentives provided for in law including but not limited to stamp duty exemption for 1st time home buyers, VAT exemption on construction inputs and corporate tax reduction for developers

3. Implement the National Tax Policy 2023 to deal with the unpredictable and uncoordinated taxation environment;

4. Create ring-fenced pools of funds from revenue sources like construction approval levies; the Unclaimed Financial Assets Authority funds etc. to invest into the housing value chain;

5. Adopt mechanisms for alternative credit scoring to provide access to credit for the very large informal sector in Kenya;

6. Provide incentives for investing in large portfolios of green and truly affordable rental housing as most of urban Kenya rents and in conjunction rethink or consider the place of laws which seek to impose rent controls as they may have the perverse and unintended effect of serving implicit subsidies randomly rather than to deserving tenants;

7. Promote the use of pension assets as collateral that increases access to mortgages by pension members (adoption of 2009 amendments), reconsider taxation on the transfer of pension assets into housing and provide guidelines for allowing a mortgage to simultaneously withdraw pension funds into housing (to enable 2020 amendments); simplify processes for applying for usage;

8. Support sharing of insights from portfolios of mortgages refinanced to KMRC, to enhance understanding of formal demand and supply;

9. Provide indexation (inflation adjustment) and predictability of rates applied in Capital Gains Tax on real assets, to encourage investment in affordable housing;

10. Provide incentives and legal recognition to small and local property developers who cannot deliver many housing units to enable them to scale or build capacity;

11. Consider doing away with the setting of minimum professional fees (scale) for relevant professionals such as lawyers, architects and engineers, which is arguably anti-competitive and increases house prices;

12. Prepare and publish enforcement regulations to enable subsidiaries of Real Estate Investment Trusts (REITS) to benefit from tax exemption in the Income Tax Act; consider allowing structuring of REITS as companies or partnerships;

13. Operationalize the SACCO’s Deposit Guarantee Fund and deal with the lack of specificity in the Sacco Societies Act (and no regulations) on documents needed to lodge a compensation claim; whether inflation is factored in compensation; and management of money/funds in the Fund as well as non-operationalization of the Central Liquidity Fund for the SACCO sub-sector.

14. Fast-tracking the implementation of the Risk Sharing Facility currently being explored by KMRC. The Risk Sharing Facility is a partial mortgage guarantee providing partial credit default loss protection to primary lenders allowing them to offer home loans to individuals with irregular income.

15. With respect to REITs, the Capital Markets Authority should consider the review of the minimum threshold for assets at Kshs 300 million and Kshs 100million for I-REITs and D-REITs respectively to increase participation of SMEs and start-ups in REITS.

16. Simplification of the approval process for registration of a REIT. This will improve efficiency and incentivise investment in REITs.