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Centre for Affordable Housing Finance in Africa
  • LEGAL, POLICY AND INSTITUTIONAL REVIEW OF THE AFFORDABLE HOUSING SECTOR IN KENYA
  • QUICK LINKS TO SEARCH FOR THE SOURCE REGULATORY DOCUMENTS
  • BILLS SCHEDULE
  • NEW DEVELOPMENTS
  • PLEASE SHARE YOUR COMMENTS & FEEDBACK
  • 1. SUMMARY of RECOMMENDATIONS
    • High Level Findings / Recommendations
    • Overall Policy & Regulatory Framework Recommendations
    • Land assembly, land acquisition, title, and registration of land tenure
    • Physical Planning
    • Construction and Maintenance
    • Financing (investment, rental, taxation)
  • 2. HOUSING VALUE CHAIN
    • i. Land assembly, Land Acquisition, Title and Registration of Land Tenure
    • ii. Physical Planning
    • iii. Construction and Maintenance
    • iv. Financing (investment, rental, taxation)
  • 3. INSTITUTIONS INVOLVED IN REGULATION OF HOUSING
    • i. Key National Government Ministries
    • ii. Secondary National Government Ministries
    • iii. County Governments
    • iv. Judiciary
    • v. Professional regulatory and advocacy bodies
  • 4. OVERARCHING POLICIES AND CONTEXT
  • 5. LAND ASSEMBLY, LAND ACQUISITION, TITLE AND REGISTRATION OF TENURE
  • 6. PHYSICAL PLANNING
  • 7. CONSTRUCTION AND MAINTENANCE
  • 8. HOUSING INVESTMENT, FINANCE & TAXATION
    • 8.1 Capital Markets and Wholesale Finance (Equity and Debt)
    • 8.2 Retail Finance
    • 8.3 Financial regulation of rental markets
    • 8.4 Taxation
  • ANNEX A: LAWS / POLICIES / REGULATIONS GOVERNING THE BREADTH OF THE HOUSING VALUE CHAIN
    • 1. Constitution of Kenya 2010
    • 2. Housing Act, 1953 Cap 117 (Revised in 2012)
    • 3. Housing Bill, 2021
    • 4. Sessional Paper No. 3 of 2016 on National Housing Policy
    • 5. Affordable Housing Act 2024
    • 6. Draft Affordable Housing Regulations, 2024
    • 7. The Economic and Social Rights Bill 2022
  • ANNEX B: LAWS / POLICIES / REGULATIONS GOVERNING LAND ASSEMBLY / ACQUISITION / TITLE / TENURE
    • 1. Land Act, No. 6 of 2012
    • 2. Land Registration Act, No. 3 of 2012
    • 3. Idle Land Taxation Policy 2018
    • 4. Community Land Act. No. 27 of 2016
    • 5. Sessional Paper No. 3 of 2009, the National Land Policy
    • 6. National Land Commission Act, No. 5 of 2012
    • 7. National Land Commission (Investigation of Historical Land Injustices) Regulations, 2017
    • 8. National Land Commission (Amendment) Bill, 2023
    • 9. Land Control Act (Cap 302), 1967
    • 10. Land Control Bill, 2023
    • 11. Environment and Land Court Act No. 19 of 2011
    • 12. Survey Act No. 25 of 1961 (Cap 299)
    • 13. Land Registration (General) Regulations, 2017
    • 14. Land Registration (Registration Units) Order, 2017
    • 15. Sectional Properties Act, No. 21 of 2020
    • 16. Land (Amendment) Bill 2022
  • ANNEX C: LAWS / POLICIES / REGULATIONS GOVERNING PHYSICAL PLANNING
    • 1. Sessional Paper No. 1 of 2017 on National Land Use Policy
    • 2. National Land Use Policy Implementation Monitoring and Oversight Tool 2022
    • 3. Kenya National Spatial Plan (2015-2045)
    • 4. Physical and Land Use Planning Act, No. 13 of 2019
    • 5. Physical and Land use Planning (Planning fees), Regulation 2021
    • 6. County Spatial Planning Guidelines, 2018
    • 7. Nairobi City Development Ordinances and Zones Guidelines 2004
    • 8. Nairobi Integrated Urban Development Master Plan (2014-2030)
    • 9. Physical Planning Handbook 2008
    • 10. Sessional Paper No. 10 of 2014 on The National Environment Policy
    • 11. Urban Areas and Cities Act, No. 13 of 2011
    • 12. Physical Planners Registration Act, No. 3 of 1996
    • 13. Export Processing Zones Act, 1990 (Cap 517)
    • 14. Investment Promotion Act, No. 6 of 2004
    • 15. Special Economic Zones Act, No. 16 of 2015
    • 16. Nairobi City County Regularization of Development Act No. 3 of 2015
    • 17. Nairobi City County Community and Neighbourhood Associations Engagement No. 4 of 2016
    • 18. Sectional Properties Regulations, 2021
    • 19. Nairobi City County Development Control Policy
  • ANNEX D: LAWS GOVERNING CONSTRUCTION AND MAINTENANCE
    • 1.Local Government (Adoptive ByLaws) Building Order, 1968 and The Local Government (Adoptive By-Laws
    • 2. National Building Code, 2024
    • 3. National Construction Authority Act, No. 41 of 2011
    • 4. National Construction Authority Regulations, 2014
    • 5. NCA Code of Conduct for the Construction Industry, 2020
    • 6. National Construction Authority (Defects Liability) Regulations, 2020
    • 7. Standards Act, 1974 (Cap 496)
    • 8. Buy Kenya-Build Kenya Strategy 2017
    • 9. Sessional Paper No. 1 of 2013 National Building Maintenance Policy for Kenya
    • 10. National Risk Disaster Management Bill 2023
    • 11. Kenya National Climate Change Response Strategy 2010
    • 12. Sustainable Waste Management Act 2022
    • 13. Forest Conservation and Management Act, No. 34 of 2016
    • 14. Forests (Harvesting) Rules, 2009
    • 15. Public Health Act, 1921 (Cap 242)
    • 16. Public Health (Drainage and Latrine) Rules, 1948
    • 17. Mining Act, No. 12 of 2016
    • 18. Persons with Disabilities Act, No. 14 of 2003
    • 19. The Climate Change (Amendment) Act, 2023
    • 20. Water Act No. 43 of 2016
    • 21. Environmental Management and Coordination Act, No. 8 of 1999
    • 22. Environmental (Impact Assessment and Audit) Regulations, 2003
    • 23. Environmental Management and Co-ordination (Water Quality) Regulations, 2006
    • 24. Environmental Management and Coordination (Noise and Excessive Vibration Pollution) (Control) Re
    • 25. Energy Act No. 1 of 2019
    • 26. Proposed Climate Change (Green & Resilient Buildings) Regulations 2023
    • 27. The National Construction Authority (Amendment) Bill 2022
    • 28. The Water (Amendment) Bill, 2023
    • 29. Persons with Disabilities Bill, 2023
    • Case Law
  • ANNEX E: LAWS AND POLICIES RELATING TO PROFESSIONALS IN HOUSING
    • 1. Architect and Quantity Surveyor Act, 1933 (Cap 525)
    • 2. Architects and Quantity Surveyors By-Laws, 1959
    • 3. Competition Act, No. 12 of 2010
    • 4. Engineers Act, No. 43 of 2011
    • 5. Engineering Rules, 2019
    • 6. Engineers (Scale of Fees for Professional Engineering Services) Rules, 2022
    • 7. Engineering Technology Act, No. 23 of 2016
    • 8. Valuers Act, 1985 (Cap 532)
    • 9. The Construction Project Managers and Construction Managers Bill 2023
    • 10. The Real Estate Management Bill 2023
    • 11. The Physical and Land Use Planning (Outsourcing of Professional Services) Regulations, 2021
    • 12. The Valuers Bill, 2022
  • ANNEX F: LAWS GOVERNING FINANCING / RENTAL / TAXATION
    • 1. Retirement Benefits Act, No. 3 of 1997
    • 2. Building Societies Act, 1956 (Cap 489)
    • 3. Banking Act, 1989 (Cap 488)
    • 4. Capital Markets (Real Estate Investment Trusts) (Collective Investment Schemes) Regulations, 2013
    • 5. Central Bank of Kenya Act 1966 (Cap 491)
    • 6. Estate Agents Act, 1984 (Cap 533)
    • 7. Sacco Societies Act, No. 14 of 2008
    • 8. Sacco Societies (Deposit-Taking Sacco Business) Regulations 2010
    • 9. Sacco Societies (Non-Deposit Taking Business) Regulations 2020
    • 10. Sacco Societies (Amendment) Act, 2022
    • 11. Sacco Societies (Specified Non-Deposit Taking Business) (Levy) Order, 2023
    • 12. Cooperative Societies Act, No. 12 of 1997
    • 13. Employment Act, No. 11 of 2007
    • 14. Guarantee (House Purchase) Act, 1967 (Cap 462)
    • 15. Civil Servants (Housing Scheme Fund) Regulations, 2004
    • 16. Housing Scheme Fund Regulations, 2018 (Legal Notice No. 238 of 2018)
    • 17. Income Tax Act (Cap 470)
    • 18. Finance Act, No. 22 of 2022
    • 19. Public Finance Management Act, No. 18 of 2012
    • 20. Unclaimed Financial Assets Act, No. 40 of 2011
    • 21. Proceeds of Crime and Anti-Money Laundering Act, No. 9 of 2009
    • 22. Kenya Deposit Insurance Act, No. 10 of 2012
    • 23. Mortgages (Special Provisions) Act, 1968 (Cap 304)
    • 24. Auctioneers Act No. 5 of 1996
    • 25. Auctioneers Practice Rules 2009
    • 26. Auctioneer Rules, 1997
    • 27. Rent Restriction Act, 1959 (Cap 296)
    • 28. Stamp Duty Act, 1958 (Cap 480)
    • 29. Stamp Duty (Valuation of Immovable Property) Regulations 2020
    • 30. Value Added Tax Act, No. 35 of 2013
    • 31. Public Private Partnerships Act, No. 14 of 2021
    • 32. County Governments Act, No. 17 of 2012
    • 33. National Rating Act, 2024
    • 34. Distress for Rent Act, 1938 (Cap 293)
    • 35. Landlord and Tenant Bill, No. 3 of 2021
    • 36. The Cooperatives Bill, 2024
    • 37. The Central Bank of Kenya (Mortgage Refinance Companies) Regulations, 2019
    • 38. Finance Act No. 4 of 2023
    • 39. Tax Laws (Amendment) Act 2024
    • 40. Tax Procedures (Amendment) Act 2024
  • ANNEX G: OFF-PLAN HOUSING DEVELOPMENTS
  • ANNEX H: IN-DEPTH ANALYSIS ON HANGING REGULATIONS
    • 1. Housing Bill, 2021
    • 2. Landlord and Tenant Bill, No. 3 of 2021
    • 3. Retirement Benefits (Mortgage Loans) (Amendments) Regulations, 2020
    • 4. Housing Scheme Fund Regulations, 2018 (Legal Notice No. 238 of 2018)
    • 5. Housing Scheme Fund Regulations, 2018 (Legal Notice No. 238 of 2018)
    • 6. National Construction Authority (Defects Liability) Regulations, 2020
    • 7. The Finance Bill, 2024
    • 8. The Valuers Bill, 2022
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8. HOUSING INVESTMENT, FINANCE & TAXATION

This section analyzes the laws and policies undergirding the housing finance value chain, identifies gaps and makes recommendations.

Previous7. CONSTRUCTION AND MAINTENANCENext8.1 Capital Markets and Wholesale Finance (Equity and Debt)

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Financing is required at every point of the housing value chain and affects both the supply and demand (affordability) of housing units. In the first instance, municipal financing is required to fund bulk infrastructure for housing units. Thereafter, financing on the supply side ensures that developers can supply houses to the market, whether for ownership or rental. Retail financing on the demand side enables prospective house buyers to afford the housing units put on the market, by amortizing the cost over a period of years, with the loan being secured by the value of the property. The regulatory framework overseeing financing along the value chain seeks to enable the breadth of financial arrangements, including purely private investment, purely public investment, and investment through public-private partnerships.

Kenya’s financial sector comprises 38 commercial banks, one licensed mortgage finance bank, one mortgage Refinance Company, and about 440 housing-specific SACCOs which interact with several housing cooperatives, the largest of which is the , or NACHU. Fourteen licensed microfinance banks provide other capital that is often used for housing, though not always explicitly tracked. Institutional investors including pension funds and private equity funds, provide the funding for housing, together with the capital markets.

Most recently in 2024, the Affordable Housing Act was enacted to promote affordable housing as part of the Bottom-Up Economic Transformation Agenda. The Act revokes all regulations applicable to affordable housing and voluntary contributions prior to its commencement and imposes a mandatory Affordable Housing Levy payable at a rate of 1.5% of an individual’s monthly gross salary with the employer matching the employee’s contribution. The Act also allows persons to make voluntary savings with the Affordable Housing Fund towards the purchase of an affordable housing unit under the Home Ownership Savings Plan Scheme. This intervention seeks to promote the supply of housing by addressing the demand-side constraint of inadequate financing among prospective home buyers and de-risking the sector with this guarantee of offtake. The constitutionality of the Affordable Housing Act has been challenged before the High Court in several suits. These cases are yet to be determined and the imposition of the levy remains, until quashed by the High Court.

The various measures implemented notwithstanding, there is still inadequate financing for affordable housing on both the demand and supply sides. This inadequacy is in terms of both the quantum of finance available and the target of what is available. On the demand side, few products can accommodate informal sector workers, while on the supply side, construction finance favours established companies, with little available for small-scale contractors. While these product developments are, of course, the prerogative of lenders, the policy and regulatory frameworks in which they operate are critical. Some of the key barriers to innovation and scale are highlighted in this review.

Across the breadth of legislative guidance summarized in this review, Kenya’s housing finance sector is however constrained by a wider macroeconomic context. For instance, heavy domestic borrowing by the government at attractive interest rates has crowded out credit to individuals and the private sector. As the government contemplates measures to improve the financial sector functioning for housing, it should address this key issue and improve the investment context for affordable housing. This would involve promoting efficiency, transparency and data sharing in the housing value chain to attract impact capital while introducing measures to de-risk such investments.

Regulations and policies that influence the Financing (Investment, Rental and Taxation) framework for housing were reviewed for this study. These are summarized in Annex F with links to their original sources for further reference:

The government has also set up the which provides loans to commercial banks and SACCOs to re-finance mortgage loans that these institutions have extended to home buyers. The uptake of KMRC financing has been low, largely due to the lack of suitable supply in the defined criteria, specifically for loans funded by World Bank financing. These criteria were originally set at a maximum household income of Kshs. 150,000/= per month, and a home value of KShs. 4 million in Nairobi and Kshs. 3 million in the rest of the country. As of September 2022, the price limits for KMRC-financed loans supported by World Bank financing increased to KShs. 6 million in Nairobi and Kshs. 5 million outside Nairobi, reflecting the market realities of available housing stock. In December 2023, KMRC further increased the income threshold for borrowers from Kshs. 150,000 per month to Kshs. 200,000 per month and the mortgage size to Kshs. 10.5million. This review is meant to match the increase in house prices and construction costs and also take into account the high living costs which has reduced the spending power of prospective homeowners. It is worth noting that a Kshs. 6 million (USD 50,000) house is affordable only to an estimated 17% of urban Kenyans. While the ‘cheapest newly built house’, as identified by CAHF in their 2021 Yearbook as costing KShs. 1.1m (USD 10,000), would be affordable to about 79% of the urban population, but very few of these units are built.

A further component of the housing finance framework relates to taxation. The activity of housing is an important source of revenue for the state, and taxation exists at each stage of housing delivery. This supports the national balance sheet and enables the government’s investments. Towards its affordable housing objectives, the government has introduced tax incentives such as stamp duty exemptions on transactions and value-added tax exemptions on construction inputs in a bid to attract investment in the sector and reduce housing costs. These incentives have not borne fruit as intended, however. A study is currently investigating the constraints.

(Quashed by the Court)

(Quashed by the High Court on the 23 November 2022)

(draft from 2019)

Kenya Mortgage Refinance Company
KPDA
National Tax Policy 2022
Public Finance Management Act 2012
Public Private Partnerships Act 2021
Civil Servants (Housing Scheme Fund) Regulations 2004
Housing Scheme Fund Regulations, 2018
Retirement Benefits Act, No. 3 of 1997
Retirement Benefits (Mortgage Loans) Regulations, 2009
Retirement Benefits (Mortgage Loans) Regulations, 2020
Capital Markets (Real Estate Investment Trusts (Collective Investment Schemes) Regulations, 2013)
Income Tax Act
Unclaimed Financial Assets Act 2011
Sacco Societies Act, No. 14 of 2008
Sacco Societies (Deposit-Taking Sacco Business) Regulations 2010
Sacco Societies (Non-Deposit Taking Business) Regulations 2020
Sacco Societies (Amendment) Bill, 2021
Draft Sacco Societies (Specified Non-Deposit Taking Business) (Levy) Order 2022
Cooperative Societies Act, No. 12 of 1997
National Cooperative Development Policy
Building Societies Act, 1956 (Cap 489)
Guarantee (House Purchase) Act, 1967 (Cap 462)
Finance Act No. 23 of 2019
Value Added Tax Act No. 35 of 2013
Finance Act 2022
Finance Act No. 38 of 2016
Distress for Rent Act 1938
Rent Restriction Act 1959
National Rating Act 2024
Affordable Housing Act 2024
National Cooperative Housing Union