# 8. HOUSING INVESTMENT, FINANCE & TAXATION

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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 [National Cooperative Housing Union](https://nachu.or.ke/), 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.&#x20;

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.&#x20;

The government has also set up the [Kenya Mortgage Refinance Company](https://www.kmrc.co.ke/) 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.&#x20;

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.

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 [KPDA](https://www.kpda.or.ke/) study is currently investigating the constraints.&#x20;

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:

1. [National Tax Policy 2022](https://www.treasury.go.ke/wp-content/uploads/2024/05/7.05.-2024-National-Tax-Policy.pdf)
2. [Public Finance Management Act 2012](https://cahf.gitbook.io/kenya-legal-policy-and-institutional-review/annex-f-laws-governing-financing-rental-taxation/19.-public-finance-management-act-no.-18-of-2012)
3. [Public Private Partnerships Act 2021](https://cahf.gitbook.io/kenya-legal-policy-and-institutional-review/annex-f-laws-governing-financing-rental-taxation/31.-public-private-partnerships-act-no.-14-of-2021)
4. [Civil Servants (Housing Scheme Fund) Regulations 2004](https://cahf.gitbook.io/kenya-legal-policy-and-institutional-review/annex-f-laws-governing-financing-rental-taxation/15.-civil-servants-housing-scheme-fund-regulations-2004)
5. [Housing Scheme Fund Regulations, 2018](https://cahf.gitbook.io/kenya-legal-policy-and-institutional-review/annex-f-laws-governing-financing-rental-taxation/16.-housing-scheme-fund-regulations-2018-legal-notice-no.-238-of-2018) (Quashed by the Court)
6. [Retirement Benefits Act, No. 3 of 1997](https://cahf.gitbook.io/kenya-legal-policy-and-institutional-review/annex-f-laws-governing-financing-rental-taxation/1.-retirement-benefits-act-no.-3-of-1997)
7. [Retirement Benefits (Mortgage Loans) Regulations, 2009](https://new.kenyalaw.org/akn/ke/act/ln/2009/85/eng@2022-12-31)
8. [Retirement Benefits (Mortgage Loans) Regulations, 2020](https://kenyalaw.org/kl/fileadmin/pdfdownloads/LegalNotices/2020/LN192_2020.pdf) (Quashed by the High Court on the 23 November 2022)
9. [Capital Markets (Real Estate Investment Trusts (Collective Investment Schemes) Regulations, 2013)](https://cahf.gitbook.io/kenya-legal-policy-and-institutional-review/annex-f-laws-governing-financing-rental-taxation/4.-capital-markets-real-estate-investment-trusts-collective-investment-schemes-regulations-2013)
10. [Income Tax Act](https://cahf.gitbook.io/kenya-legal-policy-and-institutional-review/annex-f-laws-governing-financing-rental-taxation/17.-income-tax-act-cap-470)
11. [Unclaimed Financial Assets Act 2011](https://cahf.gitbook.io/kenya-legal-policy-and-institutional-review/annex-f-laws-governing-financing-rental-taxation/20.-unclaimed-financial-assets-act-no.-40-of-2011)
12. [Sacco Societies Act, No. 14 of 2008](https://cahf.gitbook.io/kenya-legal-policy-and-institutional-review/annex-f-laws-governing-financing-rental-taxation/7.-sacco-societies-act-no.-14-of-2008)
13. [Sacco Societies (Deposit-Taking Sacco Business) Regulations 2010](https://cahf.gitbook.io/kenya-legal-policy-and-institutional-review/annex-f-laws-governing-financing-rental-taxation/8.-sacco-societies-deposit-taking-sacco-business-regulations-2010)
14. [Sacco Societies (Non-Deposit Taking Business) Regulations 2020](https://cahf.gitbook.io/kenya-legal-policy-and-institutional-review/annex-f-laws-governing-financing-rental-taxation/9.-sacco-societies-non-deposit-taking-business-regulations-2020)
15. [Sacco Societies (Amendment) Bill, 2021](https://cahf.gitbook.io/kenya-legal-policy-and-institutional-review/annex-f-laws-governing-financing-rental-taxation/10.-sacco-societies-amendment-act-2022)
16. [Draft Sacco Societies (Specified Non-Deposit Taking Business) (Levy) Order 2022](https://cahf.gitbook.io/kenya-legal-policy-and-institutional-review/annex-f-laws-governing-financing-rental-taxation/11.-sacco-societies-specified-non-deposit-taking-business-levy-order-2023)
17. [Cooperative Societies Act, No. 12 of 1997](https://cahf.gitbook.io/kenya-legal-policy-and-institutional-review/annex-f-laws-governing-financing-rental-taxation/12.-cooperative-societies-act-no.-12-of-1997)
18. [National Cooperative Development Policy](https://www.ushirika.go.ke/wp-content/uploads/2020/07/national-co-operative-development-policy.pdf) (draft from 2019)
19. [Building Societies Act, 1956 (Cap 489)](https://cahf.gitbook.io/kenya-legal-policy-and-institutional-review/annex-f-laws-governing-financing-rental-taxation/2.-building-societies-act-1956-cap-489)
20. [Guarantee (House Purchase) Act, 1967 (Cap 462)](https://cahf.gitbook.io/kenya-legal-policy-and-institutional-review/annex-f-laws-governing-financing-rental-taxation/14.-guarantee-house-purchase-act-1967-cap-462)
21. [Finance Act No. 23 of 2019](https://kenyalaw.org/kl/fileadmin/pdfdownloads/AmendmentActs/2019/FinanceAct_No23of2019.PDF)&#x20;
22. [Value Added Tax Act No. 35 of 2013](https://cahf.gitbook.io/kenya-legal-policy-and-institutional-review/annex-f-laws-governing-financing-rental-taxation/30.-value-added-tax-act-no.-35-of-2013)
23. [Finance Act 2022](https://cahf.gitbook.io/kenya-legal-policy-and-institutional-review/annex-f-laws-governing-financing-rental-taxation/18.-finance-act-no.-22-of-2022)
24. [Finance Act No. 38 of 2016](https://kenyalaw.org/kl/fileadmin/pdfdownloads/Acts/2016/No._38_of_2016.pdf)
25. [Distress for Rent Act 1938](https://cahf.gitbook.io/kenya-legal-policy-and-institutional-review/annex-f-laws-governing-financing-rental-taxation/34.-distress-for-rent-act-1938-cap-293)
26. [Rent Restriction Act 1959](https://cahf.gitbook.io/kenya-legal-policy-and-institutional-review/annex-f-laws-governing-financing-rental-taxation/27.-rent-restriction-act-1959-cap-296)
27. [National Rating Act 2024](https://cahf.gitbook.io/kenya-legal-policy-and-institutional-review/annex-f-laws-governing-financing-rental-taxation/33.-national-rating-act-2024)
28. [Affordable Housing Act 2024](https://cahf.gitbook.io/kenya-legal-policy-and-institutional-review/annex-a-laws-policies-regulations-governing-the-breadth-of-the-housing-value-chain/5.-affordable-housing-act-2024)&#x20;
