How to use retirement benefits to buy Sh7 million house in Kenya

I have worked in the civil service for 20 years with the dream of owning a home before I eventually retire. I have read that civil servants in some developed countries use their retirement benefits to buy homes where they go after calling it quits. Do we have similar arrangements in Kenya?

Wafula, Nairobi

Yes, we do. The Cabinet Secretary for National Treasury and Planning published a gazette notice on October 9, 2020 stipulating how a portion of retirement benefits can be used to own homes.

The Retirement Benefits (Mortgage Loans) (Amendment) Regulations, 2020 allows members of retirement benefit schemes to use a portion of their accrued retirement benefits to purchase a residential house from a specific institution. The regulation defines the institutions as either banks, mortgage or financial institutions, building societies, microfinance institutions, the National Housing Corporation, other institutions approved by the Retirement Benefits Authority (RBA) or any other entity offering a residential house for sale.

The law provides that members of a contribution scheme can use an amount not exceeding 40 per cent of their accrued benefits - a maximum of Sh7 million to buy a house. The purchase price should not exceed the market value of the property being purchased, excluding transaction costs and applicable taxes.

A member of the scheme is also restricted to purchase a residential house which must have been certified for occupation by relevant authorities before purchase.

However, some members of retirement benefit schemes are excluded if they have either been paid pension, taken early retirement or attained retirement age.

Slow process

After publication of the gazette notice, retirement benefit schemes were encouraged to amend their rules within 12 months to comply with the regulations. However, some pension scheme trustees say the process is painstakingly slow and long, requiring heaps of documentation to buy a house. The housing unit is also encumbered to the extent that the house owner cannot sell property bought through the scheme. Prospective buyers are even forced to dig deeper into their pockets since the scheme does not cater for stamp duty and legal fees.

Currently, mortgage penetration in Kenya is slow and low, with the number of mortgage accounts standing at 26,723 as of December 2021. Central Bank of Kenya data shows that outstanding mortgages totalled Sh245.1 billion by December 2021 up by Sh12.4 billion.

Currently, the cheapest house retails at an average of Sh3 million, which requires a monthly payment of Sh43,000 for 10 years.

The government is trying to stimulate the mortgage market by offering banks long-term cheap financing through the Kenya mortgage Refinance Company for onward lending at single-digit rates.

The state has also tried to offer property developers incentives to trigger construction of affordable housing.

- The writer is an advocate of the High Court.