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Understanding Housing Levy in Kenya

Housing levy is currently a trending topic among Kenyans. The current government aims at delivering 200,000 units every year with a purchase range starting at Ksh1 million and stretching out to Ksh5 million or more, depending on the size.

Data by the National Housing Corporation shows that the affordable housing deficit currently stands at 2 million units, growing by about 200,000 units per annum. While the market seems to have a constant supply on high-end buildings, the supply of housing in the low and middle-income segment especially in satellite towns is still low. According to the World Bank, 61 percent of urban households live in slums in Kenya, this means that as a country we have a long way to go in the provision of housing.

In this blog, we are going to discuss a number of these that will help our readers understand the housing levy better

  1. Housing levy meaning
  2. Origin of the housing levy
  3. Affordable Housing Relief

What is Housing Levy?

By definition, the housing levy is a compulsory contribution done by an employer and employees toward home ownership. The fund intends to complement governments’ efforts towards achieving affordable housing for Kenyan Citizens. The proposed changes to the Employment Act allow deductions of three percent from employees’ basic pay to help fund President William Ruto’s ambitious plan to build low-cost homes.

Once the funds are collected, they are used in financing affordable housing units which are later allocated to beneficiaries in different categories. The current bill, proposed changes in the Employment Act compelling employees to pay 3% of their basic pay to fund low-cost housing. The deductions will however not exceed Ksh 5,000.

One common question currently among Kenyans is whether a housing levy is a tax. Well, depending on how you choose to look at it, you may consider it as a tax because if the bill passes it will be a mandatory deduction.

Yes, in Kenya, the housing levy is considered a tax. The Kenyan government introduced the Housing Fund Levy, commonly referred to as the housing levy, through the Finance Act of 2018. It is a mandatory contribution that both employers and employees are required to make towards the National Housing Development Fund.

Origin of Housing Levy

The Fund’s contributions were introduced through amendments to the Employment Act, 2007, specifically in the Finance Act of 2018. As per the regulations, both employers and employees are obligated to contribute 1.5% of the employee’s monthly basic salary to the Fund. However, the combined contribution should not exceed Kshs. 5,000 per month. Individuals who are not formally employed or non-citizens have the option to contribute a minimum of Kshs. 200 per month. Additionally, the Housing Regulations, as published in the gazette, allow for contributions beyond the statutory minimum. Each year, the National Housing Corporation (NHC) is required to specify the applicable return on members’ contributions.

Fast forward to 2023, the debate is still on and Kenyans are set to make contributions towards housing levy and be part of the low cost housing program.

Employee Benefits

The Finance Act outlines several benefits that employees who contribute to the Fund can avail themselves of, including:

  1. Access to financing for purchasing a home through the affordable housing scheme. The interest rate for this financing is up to 7% per annum, calculated on a reducing balance basis. It’s important to note that the NHC may revise this interest rate periodically.
  2. Employees who do not qualify for affordable housing have the option to transfer their benefits to a pension scheme or to a registered individual within the affordable housing scheme, such as their spouse or children.
  3. Cash distributions are also available to eligible employees.

In conclusion, there are still Kenyans who prefer building a house on their own after buying a plot of land which is still okay. Whichever way you choose it is the dream and desire of every Kenyan to own a place to call home whichever route they choose to use.

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