Explainer: What is the Kenya Housing Fund?

The Finance Bill 2018, approved by President Uhuru Kenyatta on September 21, has introduced a 1.5 per cent levy on a worker’s gross salary with a monthly maximum deduction of Sh2,500 for those earning a basic salary of Sh166,000 and above.

Employers will be required to pay a similar amount for every employee to the National Housing Development Fund. This puts the maximum contribution per worker at Sh5,000.

Contributions are scheduled to start on January 1, 2019.

Although Treasury Secretary Henry Rotich had put the levy at 0.5 per cent of gross salary – with President Kenyatta raising the tax to 1.5 per cent, the rate is likely to go up progressively to 5 per cent as proposed by the Ministry of Housing and Urban Development.

How it works

The deductions put at an estimated Sh55 billion a year will go into the soon-to-be-established National Housing Development Fund and will be accessed through a tenant purchase scheme for those in the low-cost housing bracket.

It can also be securitised for mortgages for those with high incomes.

The contribution can also be used as a deposit when a worker wants to bargain a mortgage or interest rate buy-back to make the mortgage cheaper.

How to qualify

The Ministry of Housing and Urban Development is soon expected to open a website that will assign an individual an automated score on whether they fall under the low-cost housing bracket, social housing, or the mortgage cap.

To compute the score, a user will be required to enter details such as M-Pesa transactions, bank records, and the Kenya Revenue Authority (KRA) pin.

RELATED: Inside Kenya’s Sh1 Trillion Low-Cost Housing Project

Developers will build up to 2,000 houses in every country annually and those prequalified in the scheme will book a unit and begin paying for the off-plan units after registration.

The government will run a lottery every year to match the number of people who have booked to the number of houses available to prevent a situation where rich individuals buy several units and rent them out, thus defeating the plan.

Who will qualify

According to the government, workers who have made contributions to the housing fund will be given the priority to buy low-cost houses.

The State will lock out cartels trying to buy and resell the houses at a profit by using a yearly lottery scheme.

“In terms of priority, the first ones in line to get the affordable housing will be the contributors,” Mr Rotich said.

“This is how it works in other countries… we will determine whether contributors will access [the homes] on a first-come-first-served basis or use a lottery system as it happens in Ethiopia.”

Individuals earning less than Sh50,000 per month will acquire homes under a tenant purchase scheme while those earning over Sh50,000 will qualify for a 7 per cent mortgage repayable within 15 years.

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