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Centre for Affordable Housing Finance in Africa
  • LEGAL, POLICY AND INSTITUTIONAL REVIEW OF THE AFFORDABLE HOUSING SECTOR IN KENYA
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  • 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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  • 8.4.1 Tax Policy
  • 8.4.3 Rates
  • 8.4.4 Tax Incentives on the supply side (to reduce the cost of housing)
  • 8.4.5 Residential Rental Income Tax
  • 8.4.6 Affordable Housing Levy

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  1. 8. HOUSING INVESTMENT, FINANCE & TAXATION

8.4 Taxation

This section concerns itself with the implications of taxation of the housing market including taxes levied on: construction inputs, landlords and property developers, and property transactions.

Kenya’s taxation system regime covers income tax, value-added tax, customs and excise duty. The income tax is paid by individuals as Pay As You Earn (PAYE) through an automatic checkoff by the employer who remits the PAYE to the Kenya Revenue Authority. Companies pay corporate tax on their profits at the end of the year as income tax. Individuals and partnerships also file their annual returns for all profits made on their income for the financial year. Kenya employs a progressive approach to taxation whereby those who earn more pay more taxes on a graduated scale of taxation. This accords with the philosophy undergirding taxation that those most able to pay should pay more.

In the context of housing, developers must pay income tax on the profits made such as through corporation tax where they have incorporated as companies. Developers also pay value added tax for any supplies that count as construction inputs and may also be required to pay VAT on sales made. Imports made that go into the development of housing may also be liable to customs duties. In line with the philosophy of taxation creating incentives or disincentives and thus dictating investment behaviour and consumption, Kenya has introduced various tax incentives both on the supply and demand sides of housing to encourage uptake.

8.4.1 Tax Policy

National Tax Policy 2022

8.4.2 Tax incentives on the demand side

8.4.2.1 Income tax

The Affordable Housing Act 2024 stipulates that the employer’s contribution is an allowable deduction under Section 15 of the Income Tax Act. The Act further entitles resident individuals who pay the Affordable Housing Levy, to affordable housing relief of 15% of their contribution capped at a maximum of Kshs 9,000 per month and Kshs. 108,000 per annum.

8.4.2.2 Stamp duty

STATUS/ISSUE

RECOMMENDATION

Absence of mechanisms or guidelines on who is a first-time home buyer to benefit from stamp duty exemption on transfer.

First time home buyers have not been able to enjoy the stamp duty exemption provided in law since it has been difficult to identify them.

Review the law to use another criterion for determining who is to benefit from the stamp duty exemption (for example, for a defined number of years allow all housing units delivered for less than Kshs. 5 million to be exempt from stamp duty, thereby kickstarting supply); or alternatively, enact mechanisms for identifying a first-time home buyer.

The Act exempts documents including registration documents relating to a building society from paying stamp duty. Notably however, the exemption does not extend to mortgage or to the release or discharge of a mortgage, which are far much more significant

Extend the stamp duty exemption to mortgage and release or discharge of mortgages issued by building societies.

8.4.2.3 Mortgage relief

STATUS/ISSUE

RECOMMENDATION

An increase of deductible interest on Mortgage to Kshs.300, 000 p.a. (25,000 p.m) from Kshs.150,000 (12,500 p.m) (Finance Act, 2016). This reduces the amount of tax to be paid and supports homeownership.

The Tax Laws (Amendment) Act 2024 has increased the deductible interest on mortgages for purposes of taxable income computation from a maximum of Kshs. 300, 000 per annum to Kshs. 360, 000 per annum.

This mirrors the proposal in the Finance Bill 2024 which was withdrawn following public outcry on tax hikes.

Increase awareness of this relief and ease access to mortgages to enjoy this incentive.

8.4.2.4 Savings

The law previously provided for tax Relief of up to Kshs. 96,000 annually (or Kshs. 8,000 monthly) for savings towards housing. However, this was scrapped effective January 2021, partly due to the low uptake of the product.

Promoting Savings is a critical route to promoting home ownership and mechanisms to incentivize the same.

8.4.2.5 Taxation on the transfer of pension contribution into housing

1. For monies that are in the unregistered pot (i.e. non-tax exempt pot) – Member does not pay tax since it was taxed at payroll

2. For monies that are in the registered pot (i.e. tax-exempt pot) – Member pays tax as per the tables below depending on their age and service to the employer:

If the member is below 50 years old and has been in the service of the employer for less than 15 years, the below tax rules apply:

For monies that are in the unregistered pot (i.e. non tax exempt pot) – Member does not pay tax since it was taxed at payroll

For monies that are in the registered pot (i.e. tax exempt pot) – Member pays tax as per the tables below depending on their age and service to the employer:

If the member is above 50 years old or has been in the service of the employer for more than 15 years, the below tax rules apply:

Value Of Lump Sum (Sliding Scale)

Rate of Tax

1st KShs 400,000

10%

Next KShs 400,000

15%

Next KShs 400,000

20%

Next KShs 400,000

25%

Above K Shs 1,600,000

30%

8.4.3 Rates

STATUS/ISSUE

RECOMMENDATION

The National Rating Act 2024 was enacted into law on 4th December 2024 following the assent of the National Rating Bill 2022 (National Assembly Bill No. 55 of 2022).

The National Rating Act:

i) repeals the Rating Act and the Valuation for Rating Act and provides for a comprehensive framework for the imposition of rates on land and buildings by County Governments.

ii)provides guidance to county governments in preparing their respective rating legislation in their capacities as rating authorities and thus ensure proper planning and harmonisation across the country

iv) Promotes the adoption of technology in conducting valuations for purposes of rating as well as rating itself-Section 6 provides that rating authority (county governments) shall identify or create an appropriate technological system for preparation and implementation of the roll.

v) Under sections 21 and 22 county governments are at liberty to appoint a valuer so long as they 7 years’ experience and are registered with the Valuers Registration Board which means there is now room for use of private sector valuers. Section 26 however still retains provision for county governments to request the Chief Government Valuer of the national government to undertake valuation on their behalf. This will cure the current practice where County Governments have relied on the Ministry of Lands/government valuers to produce valuation rolls, with only a few using private sector Valuers.

Section 39 of the National Rating Act 2024, provides for the establishment of the National Rating Tribunal to hear and determine matters relating to the valuation of rating. The establishment of this Tribunal should be fast-tracked. For operational efficiency and to ensure access to justice, the Tribunal should have the authority to sit in circuit in various regions in the country.

Section 8 of the National Rating Act defines rateable owner to include an occupier of the rateable property. The application of this may prove problematic as an occupier may neither be a legal nor beneficial owner and thus have no identifiable interest beyond occupying the property.

8.4.4 Tax Incentives on the supply side (to reduce the cost of housing)

8.4.5 Residential Rental Income Tax

Residential Retal Income tax

(Introduced via Finance Act 2015 / Section 6A of the Income Tax Act and amended in 2020)

STATUS/ISSUE

RECOMMENDATION

This provides a flat tax of 10% on gross rental income, without deduction of any expenses, up to annual income of Kshs. 15 million. Beyond Kshs. 15 million, landlords are required to pay 30% tax on net rent (after deduction of expenses). This is a simpler tax mechanism to encourage payment on residential rental tax.

Since 80% of urban Kenyans (92% in Nairobi) rent their homes, consider a favourable flat tax to incentivize investment in affordable housing. For example, a flat tax as low as 3% on gross rent, for units renting for less than Kshs. 15,000/- per month, with no cap on portfolio size would be a key incentive for investment in this sector and allow an overhaul of the mushrooming informal settlements.

8.4.6 Affordable Housing Levy

The Affordable Housing Levy (“Levy”) is imposed by the Affordable Housing Act 2024 payable at a rate of 1.5% on the gross salary of an employee with a matching contribution from the employer. The Levy is payable not later than the ninth working day after the end of the month in which the gross salary was due, received or accrued.

STATUS/ISSUE

RECOMMENDATION

The Affordable Housing Levy has faced a lot of opposition and criticism from the public. This is mainly because it increases the tax burden of the citizens.

Review of the Affordable Housing Levy with input from relevant stakeholders. Consider including a ceiling of the maximum contribution by an individual.

Additional ways of raising funds to finance affordable housing schemes should be explored. For instance the tokenization of affordable housing projects into digital tokens that can be traded on the blockchain markets. This will necessitate the establishment of a regulatory framework for the digital currency market which is currently not in place.

[1]

[2] KPDA Research displayed at KPDA conferences

[3] KPDA Research displayed at KPDA conferences.

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A homeownership savings plan has just received approval to be listed on the stock exchange by the CMA and it would be helpful to share learnings of such products for market development.

iii)Updates the rating laws to conform the now that the laws were old and modelled on the former local authorities (municipal and county councils) being the rating authorities.

The Levy was initially introduced through Section 84 of the Finance Act 2023 as an amendment to the Employment Act. This was however challenged before the High Court in . The Court decided that the introduction of the Levy through an amendment of the Employment Act by the Finance Act was unconstitutional as it lacked a comprehensive legal framework providing for its administration. The Court also issued orders barring the collection of the Levy.

In compliance with the High Court’s ruling, the National Assembly passed the Affordable Housing Act, 2024 upon which the Levy is currently anchored. The Affordable Housing Act, 2024 has also been challenged for lack of sufficient public participation before it was passed and its exclusion of people with informal jobs. The matter is currently before the High Court in and Kenya Human Rights Commission & Katiba Institute v National Assembly & 3 Others HCCHRPET/E191/2024.

STATUS/ISSUE

RECOMMENDATION

Various tax incentives are provided in law in pursuit of national objectives; however, their application is limited due to the structuring of the incentive.

Support the development of such a register and the monitoring and evaluation framework.

STATUS/ISSUE

RECOMMENDATION

VAT exemption for purchase of local and importation of goods for the construction of Houses under AHP-Finance Act 2019, which can lead to

Simplify access to VAT exemption on inputs as this can reduce construction costs by up to 9%.[2]

Reduction in corporation tax to 15% for construction of at least one hundred (100) residential housing in a year of income, subject to approval by the Cabinet Secretary responsible for Housing. (The Statute Law (Miscellaneous Amendments) Act, 2017).

Difficulty in obtaining these incentives as the current wording requires 100 units to be delivered in a single year, which is difficult with the length of time required for approvals and offtake.

Consider amending the provisions to allow delivery over a longer period, at least till efficiencies in delivery are achieved as this can reduce sale price by as much as 4%[3].

Reduced customs tariffs on imported inputs for construction of houses under the affordable housing scheme. For instance, Import Declaration Fee (IDF) has been reduced from two per cent to 1.5 per cent.

Promote uptake of this incentive

National Environmental management Authority (NEMA) and the National Construction Authority (NCA) levies of 0.1 per cent and 0.05 per cent of the cost of construction respectively, were temporarily scrapped but have been reinstated.

Consider waivers for these fees to reduce costs of affordable housing as part of a one approval fee.

Thin capitalization laws provide for a restriction of interest expense deduction when computing taxable income where a foreign controlled company has a debt-to-equity ratio exceeding 3:1. There is no interest restriction for companies undertaking AH projects

Promote uptake of this incentive

The use of CGT taxation revenue contributes to the wider government kitty.

Consider pooling CGT revenue from housing in a ring-fenced fund to invest in infrastructure or fund offtake finance for affordable housing.

The Finance Act 2022 amended the Income Tax Act and increased the Capital Gains Tax on the total gain realized upon disposal of real property from 5% in 2020 (introduced in 2015) to 15% from January 2023.

While CGT is an important and more equitable source of taxation, the unpredictability of increasing the rate triple-fold in one year can discourage investment into housing.

Adoption of the National Tax Policy 2022 that encourages investment in affordable housing is likely to provide a multiplier effect in the medium to long term as the taxable base will grow.

The law governing the CGT relationship does not provide for indexation (inflation adjustment) when computing capital gains tax payable upon sale/disposal of a property thereby distorting property prices.

Review the law to provide for indexation (inflation adjustment/adjusting the original price of property upwards for purposes of tax to mitigate inflationary distortions) when calculating capital gains tax to consider the inflation that has affected property prices and discount the same.

The Income Tax Act is amended by the Tax Laws (Amendment) Act 2024 to allow for the exemption from taxation of income earned by non-resident contractors, subcontractors, employees and consultants for a project financed by a grant under an Agreement between the Government of Kenya and a development partner.

Provided that:

  1. The project is a hundred percent financed by the grant;

  2. The contractors, subcontractors, employees and consultants retain their status as non-residents for the tenure of the Agreement; and

  3. The income is directly related to the project.

[1]
National Rating Act 2024
Value Added Tax Act
Finance Act 2022
Finance Act 2016
Income Tax Act
Okoiti & 6 Others v Cabinet Secretary for the National Treasury and Planning & 3 Others; Commissioner-General, Kenya Revenue Authority & 3 others (interested Parties) (Petition E181, E211, E217, E219, E 221, E227, E228, E232, E234, E237 & E254 of 2023 (Consolidated) [2023] KEHC 25872 (KLR) (Constitutional and Human Rights) (28 November 2023) (Judgement)
Gakenyis & 4 Others v Cabinet Secretary Lands & 4 Others (Constitutional Petition E154, E173, E176, E181, E191 & 11 of 2024 (Consolidated))
Constitution 2010
CMA licenses Kweli Capital’s housing umbrella fundBusiness Daily
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