Homebuyers financed by saccos to get tax relief up to Sh25,000


National Treasury Principal Secretary Dr Chris Kiptoo (left), Cabinet Secretary for Cooperatives and Micro and Small Enterprise Simon Chelugui at the National Treasury building Nairobi on Wednesday, March 15, 2023, during the unveiling of Kenya national Entrepreneurs Savings Trust (KNEST) first board of Trustees. PHOTO | DENNIS ONSONGO | NMG

First-time homebuyers funded by savings and credit cooperative societies (saccos) will from July get a tax relief of up to Sh25,000 on their monthly salary in a proposed plan to amend the law by the Co-operatives ministry.

Co-operatives Cabinet Secretary Simon Chelugui has pledged to push through the amendment to the Income Tax Act to extend mortgage reliefs to members of saccos who get loans to improve, build or buy homes for their own use.

The deductions, which are equivalent to interest paid on home loans, currently apply to borrowers under commercial banks and mortgage lenders under Banking Act, building societies and National Housing Corporation’s tenant purchase scheme.

“My ministry will work closely with… Kenya Revenue Authority to address the challenges affecting saccos on affordable housing… [including] alignment and operationalisation of the Income Tax Act to give effect to mortgage tax reliefs for the first-time home buyers who borrow from saccos by listing in the schedule qualifying mortgage loans providing institutions,” Mr Chelugui told sacco leaders during a forum on affordable housing in Nairobi.

“This was entrenched through banks and we can extend the same to Saccos.”

Sacco Societies Regulatory Authority chief executive Peter Njuguna assured the sacco chiefs the proposed changes to the law will be part of the Statute Law (Miscellaneous Amendments) Bill, which is tabled before the National Assembly by June.

The Kenya Kwanza administration has identified saccos as the main drivers of demand for the affordable housing programme which aims to put up 250,000 units every year, by providing funding to prospective homeowners.

“To enable more Kenyans to own more decent homes I urge all saccos to position themselves to provide more access to affordable mortgage finance … to increase the scope of mortgage offering,” Mr Chelugui said. “I want to see saccos offering long-term loans to their members just like any other financial institution.”

Kenya has a thin retail mortgage market, estimated at 26,723 home loan accounts worth Sh232.7 billion in 2021, with an average loan size of Sh9.2 million for banks.

The high cost of mortgage which has over the years locked out low- to mid-income workers prompted the previous administration of President Uhuru Kenyatta to partner with private lenders to form Kenya Mortgage Refinance Company (KMRC).

KMRC was incorporated to derisk the mortgage market by offering long-term funds to banks and saccos for onward lending at an annual interest of five percent.

Recipient banks and saccos are, in turn, expected to lend out cash to home buyers at single-digit interest rates.

“We believe that the growth area for KMRC is through saccos. Borrowing is dominated by banks, but in future, saccos should take over,” KMRC chief executive Johnstone Oltetia said.

The elevated cost of land and building materials has also been a major impediment to the construction of affordable housing units.

The average cost of building a house was estimated at Sh34,650 – Sh77,500 per square metre early last year from Sh33,450 – Sh72,400 per square metre in late 2020, according to research by Nairobi-based Integrum Construction Project Managers.

“Key steps have been taken to reduce construction costs including exemption of Value Added Tax (VAT) on importation and local purchase of goods for the construction of houses under the affordable housing scheme. Developers will also pay a lower corporate tax of 15 percent for construction of above 100 units,” wrote Charles Hinga, Principal Secretary for Housing and Urban Development, in a newspaper article late December.

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