Kenyans contributing to the Housing Development Fund will wait for five years before accessing their money to buy homes, newly-published regulations governing the fund say.
Contributors can use their savings as a deposit or security when negotiating for mortgages to buy the affordable houses, while low-income buyers can use the savings to negotiate tenant purchase schemes that eventually leave them as owners.
The regulations are expected to formally establish the fund and pave the way for the levying of 1.5 per cent of formal sector workers’ pay every month.
The deductions were to begin at the end of October, but lack of supporting regulations meant that they had to be pushed forward.
“Contributions by individuals shall only be accessed for purposes of offsetting housing loans, security for mortgage or housing development after five years of uninterrupted contribution,” the regulations say.
The waiting period means that some contributors may not access affordable houses until the end of President Uhuru Kenyatta’s term in office.
It, however, buys developers time to complete the units, most of which are still in the planning stage, while giving the Ministry of Housing enough time to build up the fund into a sizeable war chest capable of handling the huge demand for financing from home buyers.
Kenya is seeking to deliver half a million affordable housing units in five years in order to bridge the huge housing deficit that stands at 1.85 million units.
The 1.5 percent levy on salaries is expected to generate about Sh57 billion a year, from about 2.5 million salaried Kenyans, with additional revenue expected to come from voluntary contributors, who will be putting in a minimum of Sh200 into the fund per month.
Under the plan, low-cost housing is designated for Kenyans earning between Sh15,000 and Sh49,999 per month, while those earning below Sh15,000 are classified under the social housing plan.
The mortgage plan—under the mortgage gap housing bracket—is designated for those earning between Sh50,000 and Sh100,000 per month.
Contributors who earn more than Sh100,000 per month will get their contributions plus interest transferred to their pension schemes after 15 years of contribution, or upon retirement if it comes before the expiry of the period.
Employees can also get back their money if they are unable to continue with their contributions due to disability, or if they have not been allocated or obtained a house in 15 years.
They will, however, only get their own contributions plus the returns earned, but not the employers’ share of the contribution.
There are four sizes of houses to be developed under the programme, the cheapest being studio apartments whose price will start at Sh600,000 each.
Prices for one bedroom units will start at Sh1 million, while two bedroom units will be priced from Sh1.4 million each.
Sh2m for three-bedroom unit
Three bedroom units are expected to cost about Sh2 million each, with the final price dependent on location of the units.
Those workers who access loans from the fund are expected to pay interest at seven percent per annum, making the units cheaper to finance than conventional mortgages that charge double digit interest rates.
“Three percent shall be for the preservation of the value of the fund, and up to four percent for management costs, insurance that includes both life and asset and facility management,” the regulations say.
Separate development framework guidelines for the affordable housing plan show that the fund will rely on applicants’ credit rating when assessing who is to get the units under a lottery system.
This means that Kenyans who have a negative credit rating are likely to miss out on houses or be given lower priority compared to those with a clean record.
“Scoring will be via Credit Reference Bureau (CRB) verification – through third party interfaces including mobile network operator verification, which will provide mobile wallet transaction history to build credit profiles of those not conventionally banked,” the guidelines state.
This could prove problematic for those who have been blacklisted due to defaults on mobile loans, given that the fund will also be accessing mobile transaction profiles for credit scoring of applicants.