Kenya seeks 5pc contribution to fund homes plan
- Voluntary contributions—set at five per cent of monthly income—will complement budgetary allocations by the Treasury into the fund.
- National Housing Bill has pegged the Treasury’s annual contribution into the housing fund at five per cent of the national budget.
Kenyan workers will now have the option to contribute a portion of their monthly income into a new housing fund with the aim of accessing affordable mortgage loans.
The voluntary contributions—set at five per cent of monthly income—will complement budgetary allocations by the Treasury into the fund.
The National Housing Bill has pegged the Treasury’s annual contribution into the housing fund at five per cent of the national budget.
Tirop Kosgey, the Permanent Secretary in the Ministry of Housing, said he expects that employers will match the contributions made by workers who choose to become members of the housing fund.
“We are proposing that workers contribute five per cent of their earnings. The membership will be voluntary,” said Mr Kosgey, adding “We are negotiating with the employers’ lobby on the possibility of employers supporting their employees in the scheme.”
Mr Kosgey expects that the Fund will provide mortgage loans for home buyers at about 6.5 per cent interest rate, while savers will earn interest of about two per cent on their contributions.
“Members can opt out of the fund by withdrawing their savings plus the accrued interest income,” said the PS, adding that the funding model had proved successful in Singapore and Malaysia.
The Federation of Kenya Employers could not be immediately reached for comment on the government’s proposals.
The PS added that the proposals were expected to unlock opportunities for thousands of workers who do not have home ownership savings schemes.
The government has proposed to set up the fund to unlock the mortgage market, whose growth has stalled due to exorbitant interest charges by mortgage lenders who discourage borrowers.
A Central Bank of Kenya survey established that there were only 16,135 mortgage borrowers as at the end of last year.
Mr Tirop faulted the Retirement Benefits Authority for failing to help in the development of special purpose investment vehicles that could utilise pension savings for the development of housing.
Job Kihumba, an executive director at the Standard Investment Bank, said the proposal would help in deepening the capital markets by providing a big pool of long-term funds that can then be directed to the housing sector.
“That would be an excellent means of increasing the national savings level, which then would provide long term funds,” said Mr Kihumba, adding that Kenya has a poor national savings level compared to global average levels.
Mr Kihumba said the scarcity of long-term funds in the market had hampered the development of the markets to develop securities that would be directed to the real estate sector.
Average savings rate among the Asian economies is between 30 and 35 per cent, according to the investment banker, which allows them to provide home ownership to a broad category.
He, however, cautioned that the government would need to hire professional fund managers to reduce chances of wastage of resources.
Bankers have blamed the lack of long-term funds in the markets to the high cost of loans to the property market.
The lenders say they depend on short-term funds in the form of customer deposits that are prone to high volatility to fund long-term business like mortgages.
The housing fund is also expected to provide construction finance to developers and even local authorities at a discount rate compared to commercial banks, whose loans are currently priced at about 23 per cent.
Mr Tirop said the pensions industry has a bigger role to play to develop financial instruments that support the real estate sector.