When President Uhuru Kenyatta was re-elected in 2017, he embarked on a legacy programme dubbed the Big 4 Agenda that entailed manufacturing, affordable housing, food security and affordable healthcare.
One of the agenda, affordable housing, was expected to deliver 500,000 housing units in a span of five years to plug the gap estimated at between 1.8 million and 2 million units, and growing at 200,000 per year.
Three years later, only 228 houses have been delivered.
To realize the agenda, the government introduced a levy, which faced strong public opposition leading to a presidential directive for the levy to be withdrawn. With the levy route dead, the president then introduced incentives to those saving to buy or construct a home, and also to developers.
“Through the Finance Act 2019, we have provided VAT exemptions for all inputs in affordable housing development schemes. We have also continued to provide a 15% corporate tax rate for developers with projects producing at least 100 affordable housing units; which is half the normal corporation tax rate,” the President said on December 6, 2019, while in Machakos.
President Kenyatta also announced that first time home owners will be exempted from paying stamp duty under the affordable housing arrangement.
“We have also waived NEMA and National Construction Authority fees on constructions; and we are seeing various counties following suit by waiving their county government development fees in order to further reduce the cost to ordinary citizens,” he added.
Industry players were very happy with the new approach for funding affordable housing and hailed the Presidents incentives approach as effective. However, almost two and half years after the launch of the agenda, development seems to be staggering, with developers citing difficulty in raising funds through investment vehicles. Only 228 houses have been delivered.
One of such is Real Estate Investment Trusts (REITs), which raise funds from investors and construct affordable houses for residents. REITs are regulated by the Capital Markets Authority (CMA), which requires that they should have trustees.
REITs are regulated investment vehicles that enable collective investment in real estate, where investors pool their funds and invest in a trust with the intention of earning profits or income from real estate, as beneficiaries of the trust.
REITs are seen as the modern day development vehicles that will achieve the affordable housing agenda, but according to stakeholders, CMA seems unable to clear obstacles to bring REITs into effect. Over six years after the legislation of the REIT regulations, there isn’t a single Development REIT in the market.
CMA requires that to be a REIT trustee, you have to have at least Ksh100 million in capital, essentially limiting trusteeship to big balance sheet companies such as banks. Yet on the other hand, to be a trustee of a pension fund regulated by the Retirement Benefits Authority, one is required to have a capital of Ksh10 million.
“The Sh10 million requirement makes it easier to have many corporations eligible to be trustees hence promoting a vibrant market. How do we explain small market like the Sh6 billion REIT market requiring 10 times the capital compared to the capital required by a much larger Sh1.3 trillion pension fund market?” wonders Cytonn CEO Edwin Dande, in an opinion published in a local daily.
Developers are also allowed to source for funds for housing through collective investment schemes (CIS), but regulations require that the maximum a scheme can invest in one asset class is 25 percent.
“That makes it difficult to form a specialised fund to invest in housing. In this day and age, it’s just bizarre that we have regulations that deter specialised funds such as technology fund, financial services fund or a housing fund. Other than the amount required for liquidity, a housing fund should be allowed to invest the vast majority of its funds into housing,” adds Dande.
CMA is also yet to operationalise the amended Income Tax Act that expanded the Home Ownership Saving Plan (HOSP) tax benefit to include savings done in collective investment schemes.
Last year, it was estimated that Kenya needs at least Ksh5 trillion to adequately address the issue of affordable housing, according to Pan African housing development financier, Shelter Afrique. This means that the agenda cannot be achieved by the government alone, and involvement of both local and international investors should be considered.
Market players have now formed a lobby group, the East Africa Forum for Alternative Investments, EAFAI, to lobby the government to clear the obstacles to financing affordable housing, claiming that CMA regulations are written to suffocating capital markets to the favor of banking industry.
Also, CMA needs to open up the market by doing away with regulations that suffocate the real estate industry.
Efforts to get a comment from CMA acting CEO Wyckliffe Shamiah did not bear fruits as he promised to get back on phone, but had not done so by the time of going to press.