Why housing levy may be far from being a 'sweetheart deal'

"Where else can you get 100 per cent return? For employees, this is what I call a sweetheart deal. It is a very good deal."

The housing fund will have each Kenyan with a payslip contribute varied amounts to a maximum of Sh2,500 every month for seven years, which will be matched by the employer towards the state's plan of accumulating capital to construct over 200,000 housing units across the country.

"The levy has the potential to alleviate the housing shortage in Kenya providing a dedicated source of funding for the construction of affordable housing units," says Jiten Kerai, the general manager of Purple Dot International, a real estate company.

He says by pooling resources through the levy the government can invest in the development of affordable housing.

The argument that the fund will enable more Kenyans own homes seems to be the selling point for this levy even for those experts who also express reservations.

Against the emotions attached to the proposal as contained in the Finance Bill 2023, a pertinent question is: Can that Sh2,500 monthly for top earners or Sh1,000 for majority of the Kenyan workers afford you a house after seven years?

An analysis by Real Estate shows that even with the mandatory deductions, by the end of seven years, you are likely not to be in a position to afford a deposit for that affordable house unit.

If you postulate this housing fund with the Park Road affordable housing project which is the government's selling point for this levy, it is only a small population of Kenyans who will afford units by the compulsory monthly deductions.

And these are those who will be contributing Sh2,500. These individuals are likely to be those earning sh100,000.

"Majority of Kenyans will pay sh1,000 and below," said the PS during the over an hour long press release at State House.

The average price of a unit in Park Road is Sh3.3 million. One needed 12.5 per cent deposit to afford a mortgage to buy the unit or get it in cash.

This deposit amounts to sh414, 233. One will then be required to service the mortgage through rent-to-own terms at sh19,000 every month. This is instead of sh111,000 every month if prevailing market rates were to apply.

The majority that the PS was referring to fall under the sh30,000 a month bracket. This means in one year, this worker has contributed sh12,000 which translates to sh84,000 after seven years.

Even if you add your employer's contribution of a similar amount to make it Sh168,000, it is a far cry from the Sh414,233 required deposit to afford a unit.

Still, if you remain a member of the fund for another seven years the amount will be Sh336,000 which is still below sh414,233.

And considering inflation and the rising cost of inputs, it is not guaranteed that even with government incentives, the cost of a unit would still be Sh3.3 million in 14 years.

But this, according to the PS, is a better investment than putting money in a fixed deposit account.

"If you pay sh1,000 and put it in a fixed deposit account, how much returns do you think you are going to get? Sh70 after one year; isn't it seven per cent? But take that Sh1,000 and put it in a housing fund, what are you getting? As an employee first of all you 100 per cent return on day one. The minute you put Sh1,000 in housing fund your employer contributes another Sh1,000," said PS Hinga.

The PS insists that the main purpose of the scheme, which will also allow voluntary contributions, is for one to exit with a house and not get their money back.

"Let me put it into context; Sh2,500 a month is only Sh210,000 in seven years. That is what I need to pay you. So it is not millions that you would have saved," said the PS in a bid to debunk the argument on accrued interests associated with the savings.

He added: "For the average Kenyan who is going to contribute Sh1,000 and below, that is Sh84,000. Look at the Sh210,000 that you want to take out against the unit that is 60 per cent subsidised. The idea is to incentivise you to get it."

The PS has reiterated severally that the fund is not a tax. He equates it to a saving, a national chama he says, adding that it is like moving money from one pocket and putting it in another where you are likely to get a house.

It should not also be misconstrued to be an investment of some sort since there is no surety that you will get your money with the seven per cent interest being fronted as the possible rate for the savings.

Even with the efforts put in place with the Kenya Mortgage Refinance Company (KMRC), the PS admitted that not so many Kenyans can afford a house yet the mortgages offered by banks through KMRC are single-digit compared to other financial institutions.

Data shows majority of those who have benefited are those whose combined household income is sh150,000.

And since the average Kenyan, as per the government's postulations earns Sh30,000 and would be contributing Sh1,000(and even more contributing less) every month, it raises the question of who exactly will be able to afford the units once the seven years' elapse? Or rather, for how long exactly should one be deducted in order to afford a Sh414,233 deposit for unit?

The latest numbers from Kenya National Bureau of Statistics (KNBS) show that there are 3,015,400 wage-employed workers. It is from this cohort that the government seeks to get sh9 billion monthly.

There are 15.9 million informal workers who the PS says will also contribute through the voluntary scheme.

"Imposing a levy on civil servants may place an added strain on their finances, potentially affecting their overall well-being and discouraging public sector employment," says Kerai.

He adds that implementing the levy may also discourage workers to join the formal sector.

"Factors such as government support, housing deficiency, and willingness to contribute will heavily influence its effectiveness," says Kerai.