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Reduced affordable housing funding to slow down sector

By People Team
Friday, June 19th, 2020
Housing project. Photo/Courtesy
In summary

Boma Team 

The government has been criticised by developers and professionals in the building and construction industry for backtracking on budgetary allocations to the Affordable Housing Sector, one of the pillars of Jubilee governments Big Four agenda for economic development. 

The affordable housing sector was allocated Sh6.9 billon, a 34.3 per cent reduction from the Sh10.5 billion allocated in 2019/2020.

“We expect this to slow down supply of affordable housing units by the government, thus denting its goal of providing 500,000 housing units by 2022,” says Cytonn Real Estate Investments.

“Affordable housing for the third year running got a raw deal. Sh6.9 billion is a drop in the ocean compared to the national development agenda,” quipped says Nashon Okowa, chairman Association of Construction Managers of Kenya (ACMK).

Also in contention is the allocation for infrastructure sector at Sh172.4 billion, 60.4 per cent lower than the Sh435.1 billion allocated last year.

This is the lowest allocation in the last 10 financial years attributed to a projected revenue shortfall in the wake of a slowdown in the economy due to disruptions by the Covid-19 pandemic. 

“We expect the reduced allocation to lead to reduced development activities thus a slowdown in opening up of areas for housing developments,” said Edwin Dande, CEO Cytonn Investments. 

Treasury plans to inject Sh15.5 billion directly into the housing sector to cater for the Affordable Housing Programme undertaken by development partners.  

Mortgage finance

Discussions to bring on board an additional Sh3.6 billion from the African Development Bank, Sh7.5 billion for the Kenya Urban Programme and Sh1.1 billion for the on-going construction of Gikomba, Githurai, Chaka, Kamukunji and Dagoretti markets are also on course.

“This can stimulate the property economy that is stagnant owing to economic shocks orchestrated by the Covid-19.

Ukur Yatani, Cabinet Secretary for the National Treasury & Planning reads the national budget in Parliament last week. Photo/PD/GERALD ITHANA

This is a very significant move if implemented well,” said Benedict Mutuku, executive director, Goldwyn Consult Ltd, Mombasa. 

The pandemichas seen input prices rise with importation of essential construction materials becoming expensive, increasing the demand and therefore creating a new challenge for future developments.

High cost of homes and limited access to affordable long-term finance remain a leading housing market constraint, one of the key sectors to be adversely hit by the disease.

In his maiden Budget speech last week, Treasury CS Ukur Yatani said the government established the Kenya Mortgage Refinance Company (KMRC) to provide long term funds to primary housing mortgage providers in the housing sector. 

The firm is expected to offer fixed rate long-term loans at concessional rates to mortgage providers who are expected to pass the benefit to citizens at lower than market rates.

KMRC has raised Sh2 billion in capital while the Treasury has mobilised an additional Sh35 billion from development partners to support its operations.

KMRC is further expected to help maintain adequate liquidity among primary housing mortgage providers (banks and Saccos) in order to keep housing finance and the housing market functioning.

“This will cause a potential credit crunch that would hurt lower income households and interrupt efforts to support affordable housing.

The company is also expected to play a significant role in the structuring of the proposed National Credit,” the CS said.

However, players in the real estate sector want the mode of provision of mortgage of long term funds to primary housing mortgage providers in the housing sector by KMRC reviewed to ensure both the mortgage providers and buyers benefit from the fund to avoid stagnation.

“KMRC is struggling to raise funds for this agenda and cannot be solely relied on,” says Okowa. 

According to Mutuku of Goldwyn Consult, Mombasa, there is also the need to have universal access to these loans to ensure they don’t fund only developers and forget the buyers.

“If both parties benefit from these funds it will open a smooth flow of cash in the economy.

Otherwise when you fund developers alone, they will flood the market with houses without buyers,” he said.

Treasury has also proposed the removal of the House Ownership Savings Plan (HOSP) tax relief under the Income Tax Act, with the aim of boosting tax collections.

“If approved, we expect this to cripple home ownership especially among low middle-income households, as many potential homeowners may be put off by the forgone tax rebates,” says Cytonn Real Estate.  

 Treasury has also proposed expansion of the bracket of individuals paying rental income tax on rents collected annually  to up to Sh15 million, up from the previous threshold of Sh10 million.

Initially, a 10 per cent rental income tax was subjected on property owners collecting annual rents of between Sh140,000 and Sh10 million. 

Residential Income Tax

“The expansion of the bracket will lead to an uptick in revenue collections by the State  from landlords at a time when the government is experiencing reduced revenue collections. 

However, some property owners may opt to raise their rents in a bid to cover for the lost margins,” says Cytonn. 

The National Treasury also wants  the removal of the House Ownership Savings Plan (HOSP) tax relief under the Income Tax Act, with the aim of boosting tax collections.

If approved, we expect this to cripple home ownership especially among low middle-income households, as many potential homeowners may be put off by the forgone tax rebates. 

The National Treasury also proposed the removal of the House Ownership Savings Plan (HOSP) tax relief under the Income Tax Act to boost tax collections.

If approved, this could cripple home ownership especially among low middle-income households, as potential homeowners may be put off by forgone tax rebates.

Okowa has meanwhile applauded the State’s Sh10 billion, Kazi Mtaani initiative that targets jobless youth in urban settlements who rely on construction casual work to survive. 

“However, a lot more could till have been done. Pending payments to contractors was merely mentioned with no clear action path on how counties and governments institution were to ensure this is done,” he added. 

The CS also seeeks to review the contracting framework for infrastructure projects to ensure greater local participation.

“This is a joke because it is just that-mere talk. Of course, this could be a game changer in the construction sector if it could be realised, but I’m not optimistic,” Okowa said. - Steve Umidha, Noel Wandera, Harrison Kivisu and Harriet James   

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