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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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  1. ANNEX F: LAWS GOVERNING FINANCING / RENTAL / TAXATION

5. Central Bank of Kenya Act 1966 (Cap 491)

This law provides for the functioning and operation of the Central Bank of Kenya, part of which includes regulation of commercial banks and mortgage refinance companies that fund housing development.

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The law provides for the operation and functions of the Central Bank of Kenya and establishes the currency of Kenya.

· Under section 4 of the Act, the principal objective of the Central Bank is to formulate and implement monetary policy directed to achieving and maintaining stability in the general level of prices, or put differently, to ensure price stability/deal with inflation. In this regard, the Monetary Policy Committee of the Central Bank meets at least once every two months to set the benchmark rate, which signals to commercial banks whether to increase or decrease the interest rates on loans. During periods of inflation, the Central Bank usually raises the rates to avoid overheating the market and stabilize general prices, this leads to more expensive credit as commercial banks also increase the interest rates they levy on credit/loans.

· Section 4(2) requires the Central Bank to foster the liquidity, solvency and proper functioning of a stable market-based financial system. Ensuring the liquidity and stability of financial institutions is a critical function as it ensures that financial institutions are healthy and able to provide financing to housing on both the supply side as well as the demand side.

· Under section 4(3), the Central Bank is required to, subject to ensuring price stability and financial stability, support the economic policy of the Government including its objectives for growth and employment. The Cabinet Secretary for Finance may specify the economic policy to be taken by the Government through a notice in writing directed to the Central Bank. Given that the current government seeks to promote affordable housing as an economic policy to create jobs and also provide shelter for her citizens, it would follow that the Central Bank of Kenya is under a legal obligation to support the government through its monetary policy measures, so long as doing so does not interfere with its key objectives of price and financial stability. It is not entirely clear how much the Central Bank of Kenya has been supporting the economic policy of government (of affordable housing) in this regard. This needs to be explored further.

· Other functions of the Central Bank that are relevant for affordable housing are set out at section 4A of the Act and include the power to license and supervise mortgage refinance companies. This is further provided under section 33P of the Act which prohibits any person or entity from engaging in the mortgage refinance business without a licence. Mortgage refinance companies are defined under section 2 of the Act as non-deposit taking companies licensed to undertake the business of providing long term financing to primary mortgage lenders for housing finance and any other activity that the Bank may from time to time prescribe. An example of a mortgage refinance company (which is the only one currently) is the Kenya Mortgage Refinance Company, which was licensed to provide long term funding to banks and SACCOs which then on lend to customers to enable them acquire housing.

· The specific powers of the central bank in regulating mortgage refinance companies are set out under section 33Q of the Act and include: licensing such companies; determining minimum liquidity requirements and permissible investments; determining capital adequacy standards and requirements; supervision of such mortgage refinance companies; revoking or suspending the licence; among other powers. Section 38 of the Act provides that the Central Bank may set minimum reserve requirements (requiring institutions such as commercial banks to keep minimum cash balances on deposit with the Central Bank as reserves against their deposit and other liabilities). By setting minimum capital and liquidity requirements, the central bank effectively determines how much funds are available to mortgage refinance companies and financial institutions (banks and microfinance institutions) to extend as loans/credit in support of affordable housing.

· Section 57 of the Act empowers the Central Bank to develop and publish regulations, guidelines, circulars and directives to give effect to the provisions of the Act. In particular, the Central Bank may publish regulations on anti-money laundering and measures for countering financing terrorism; credit information sharing; consumer protection; and permissible and prohibited activities.

· The Regulations provide for the establishment, licensing and operation of mortgage refinance companies. A mortgage refinance company shall engage in the authorized following activities— (a) refinancing or purchasing of eligible mortgage loans; (b) investment in debt securities issued by the Government of Kenya or any guaranteed debt; (c) providing fully secured long term financing to primary mortgage lenders for financing of eligible mortgages; (d) issuing bonds, notes and other financial instruments for purposes of meeting its objectives; and other activities as may be determined by the Bank from time to time.

· The promulgation of these Regulations allowed for the establishment of the Kenya Mortgage Refinance Company to provide affordable financing to financial institutions (including microfinance institutions and SACCOs) at five percent interest rate for onward lending to prospective homeowners at 7 percent interest rate for a principal maximum mortgage amount of Ksh. 4 million in Nairobi metropolitan area and Ksh 3 million in other areas.

· The purpose of the facility is to provide liquidity to financial institutions by allowing them to refinance illiquid mortgage assets thus enabling mortgages to be issued at longer tenors and with lower rates given the reduced liquidity risks. It is hoped that this will mitigate against the high interest rate of mortgages in Kenya which has resulted into a very low uptake.

· However, for the KMRC to be effective, there is need to put more effort toward the attainment of stable and lower interest rates. There is also need for reduced government domestic borrowing which may crowd out KMRC from accessing the needed funding. In addition, there is need to apply other standards for credit assessments to on board other informal low-income workers who are not salaried.

· Under section 36A (2), commercial banks are obliged to disclose any positive or negative information about their customers to licensed credit reference bureaus, where such information is reasonably required for the discharge of the functions of the banks and the licensed credit reference bureaus. This regime of credit information sharing has been further augmented by the and serves to provide credit scores of customers thus dealing with information asymmetries and promoting responsible lending. However, in practice, there has been a preoccupation with sharing half-file credit information (largely negative credit information of a customer) with credit reference bureaus leading to blacklisting of borrowers as opposed to full file information (including positive credit information) which would provide a better assessment of a customer.

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· Relatedly, the Central Bank of Kenya issued on 8 June 2021 (effective 1 July 2021) to all commercial banks and mortgage institutions. The Circular amended the risk weighting (capital requirements) for mortgage loans by reviewing the treatment of residential mortgages under the Basel III framework/Accords. Mortgage lending fully secured by residential property located in cities and municipalities (occupied by borrowers or rented) is assigned a risk weight of 35% from the earlier 50%. This relaxation in capital requirements is expected to free more capital/credit to flow in favour of residential mortgages.

Credit Reference Bureau Regulations 2020
Central Bank of Kenya (Mortgage Refinance Companies) Regulations, 2019
Banking Circular No. 2 of 2021
https://new.kenyalaw.org/akn/ke/act/1966/15/eng@2024-12-27