- They plan to free five per cent of their assets investments equivalent to Sh75 billion and a further five per cent REIT projects allocation of a similar amount.
- They also want the mandate of the Kenya Mortgage Refinance Company (KMRC) to be expanded.
Image: TWITTER
Pension funds in Kenya can raise Sh450 billion, enough to jump-start the government's affordable housing agenda.
In a white paper presented to President William Ruto on October 13 last year, moments after being sworn in as the head of state, stakeholders in the pension industry in Kenya assured him that they will finance his housing vision.
A white paper presented to Ruto and seen by the Star shows that pension funds will free five per cent of their assets investments equivalent to Sh75 billion and a further five per cent REIT projects allocation of a similar amount.
"This provides for Sh150 billion for affordable housing under the PPP Act, and affordable housing projects under the REITs structure and we expect at the very minimum an equal match from the global investors, delivering Sh300 billion in funding,'' the white paper reads in part.
The RBA guidelines allow pension assets investments of assets under management of up to 10 per cent in affordable housing and infrastructure projects done under the PPP Act, and up to 30 per cent allocation of assets under management to REITS.
"This provides Sh150 billion for affordable housing and infrastructure projects under the PPP Act. We expect at the very minimum an equal match from the global investors, delivering Sh300 billion in funding,'' the paper signed by Liason Group MD Tom Mulwa reads.
They recommended issuing end-user home loans priced between 7-9 per cent, similar to those extended to staff as an employment benefit.
The challenge of the cost of units will be addressed by the government whereas that of home loans will be mitigated by pension funds.
Pension funds also suggested the use of Long Term Tenant Purchase Scheme agreements to resolve the financial quagmire facing borrowers and prospective homeowners in the country.
They also want the mandate of the Kenya Mortgage Refinance Company (KMRC) to be expanded to include offering local guarantees for rent-to-own arrangements.
To achieve this, they want the government to revise the withholding tax to income on housing funds from 15 per cent to 10 per cent.
They have recommended for policy statement authorising a charge on the land provided by the government for affordable housing in favour of REITS.
They also want automation of the sectional titles upon submission of completion certificates.
Other proposals include:- a further tax relaxation of the VAT tax exemptions on affordable housing raw materials to include services and removal of beareucractic processing time of VAT refund by exempting it at source against a PPP and a Boma Yangu certificate.
They also lobbied for the exemption of income tax on dividends earned from REITS investment and the removal of withholding tax on interest from housing and infrastructure bonds.
The move by pensioners partly answers the illusive initial financing question in the controversial affordable housing project and porous proposal in the Finance Bill, 2023.
A private investment manager Paul Muema terms the government's affordable housing proposal as a sound idea, only that it lacks clearly defined terms.
"The state must build on the proposal by pension funds to illustrate to Kenyans how to fund and allocate housing units. The project has recorded success in several countries including Singapore and Brazil,'' he said.
Critics of the project have, however, termed it as a long con due to unclear messaging from state officials.
The government wants employees to pay three per cent of their salaries to be marched by employers as illustrated in the Finance Bill set to be tabled in the Parliament.
This has been met with heavy opposition from various sections, with the opposition coalition led by Raila Odinga threatening to shoot down the bill in the Parliament.
The proposals through the Finance Bill 2023 provided that the sum of the employer and employee contributions shall not exceed Sh5,000 a month.
This means high-salaried workers will contribute less than three percent of basic monthly pay to the National Housing Development Fund if the lawmakers approve the proposed changes to the law.
The proposed housing levy largely mirrors a policy that was dropped by the previous administration following sustained pressure from labour unions and employers.
The team drew participants from the Association of Pension Fund Managers, Fund Managers Association, Association of Custodians and the Actuarial Society of Kenya.