Developers who put up at least 400 low-cost residential houses will now enjoy a lower corporate tax rate of 15 per cent, down from the normal 30 per cent, as the government looks to boost housing for low-income earners.
President Uhuru Kenyatta last week signed into law the Finance Bill 2016 handing developers the terms that are more generous than the initial offer made by Treasury secretary Henry Rotich.
Mr Rotich in his June 8 Budget speech had indicated that developers who build at least 1,000 units would be eligible for a tax break and would pay corporate tax at a rate of 20 per cent.
“Key amendments in the Finance Act, 2016 are: reduction of corporate tax from 30 per cent to 15 per cent for investors who put up 400 and above residential housing units to promote housing development,” said Manoah Esipisu, State House spokesman on Sunday.
The new terms will come as good news to developers who had argued that the 1,000 units target was too high adding that few companies in Kenya had capital to finance such large developments.
Deloitte East Africa associate director Gabriel Ouko in June noted that for the tax break to be effective, the government would need to lower the number of units from 1,000 to allow for many investors to participate.
David Kanyi, chief executive at Kenya Projects, a company developing houses for as little as Sh1.5 million, had suggested that the threshold should have been set at 100 units and be scaled up annually.
The government is yet to define what a low-cost house is with varying interpretations among the sector players.
“A low-cost house is a development that has been built with monies not exceeding Sh2 million,” said Nairobi’s Homes Universal chief executive Daniel Ojijo.
“The house is ideally built for people who earn an income of between Sh40,000 and Sh60,000. Low-cost houses are also mainly located in peri-urban areas on the outskirts of the CBD (central business district). Low-cost houses do not go beyond three bedrooms.”
Kenya has an annual shortage of 150,000 housing units, mainly in the lower end of the market with developers concentrating on the more lucrative middle and high income segments.
These two segments have been the driver of the real-estate boom in the last decade but analysts now say that the lower-income housing segment is the next frontier for real-estate investors as the high-end market becomes saturated.
Developers are stuck with huge stocks of the high-end units that they find a hard sell.
Data from the Central Bank of Kenya shows that the average mortgage size stood at Sh8.3 million indicating high cost of residential properties, which has locked out a majority of Kenyans from owning homes.
Besides the tax breaks to entice developers to build low-cost homes, the government is working with multilateral lenders to set up a housing kitty that will offer affordable mortgages to low-income earners mainly through savings and credit cooperative societies.