Will the budget rebuild the low-cost housing dream?

One of the issues that most players in the property sector are pondering over following the presentation of the ambitious Sh3 trillion budget last week is whether it sends a strong message about the government’s commitment to making housing affordable.

The 2018/2019 budget, which was centred on Jubilee’s “Big Four” agenda, saw Treasury Cabinet Secretary Henry Rotich allocate Sh460 billion to the key pillars ‑ manufacturing, food and nutrition, universal health coverage, and affordable housing.

In particular, the affordable housing plan, which will see the government build 500,000 affordable houses by 2022, was allocated Sh6.5 billion,  which some property insiders say is too little, given the country’s housing woes.

Although  this programme offers  several incentives to  attract investors in low-cost housing, including servicing land in major towns to prepare them for such initiatives, the question is whether the 10 per cent expected to come from the budget, as outlined in the government’s blueprint on affordable housing.  is enough, The private sector is expected to contribute a huge chunk of resources and expertise towards the realisation of this dream.

During last year’s Jamhuri Day celebrations, President Uhuru Kenyatta committed to dedicate his energy, time and his administration’s resources in the next five years to the Big Four, affordable housing being one of them.

This financial year’s budget is the first for him to implement the plan, and experts say it is sure  to have a big impact on the property market, especially seeing that this is the first time the government is injecting money directly into the sector.

DN2 sought  the views of real estate insiders on what this budget portends for the property industry.

Dr Raphael Kieti, a lecturer in the Department of Real Estate and Property Management at Technical University of Kenya, says  the government’s move   shows commitment since this is the first time it is making a direct allocation to housing.

“Housing is a basic need. After healthcare and food security, it only makes sense that housing comes at number three. However, the allocation is a drop in the ocean, considering the government’s goal of building 500,000 housing units in five years,” he says.

Universal health coverage was allocated Sh44.6 billion while food and nutrition security got Sh20.25 billion. Provision of affordable and decent housing, and manufacturing came third and fourth with Sh6.5 billion and Sh2.4 billion allocations respectively.

Mr Morris Okoth, a director at ProLand Realtors Ltd, a real estate firm based in Nairobi, expressed optimism in the budget. “I think the budget is okay, but of course with provision for supplementary budgets and knowing very well at the back of our minds that a project can spill over to two years, and that the additional budget can come the following year.”

The government has asked the counties to align their budgets with the “Big Four” agenda, and Mr Omollo says, if they were also to allocate funds for affordable housing, and with the support of the private sector through public-private partnerships (PPPs), the country would achieve twice the number of  affordable houses  it plans to build.

Mr Omollo doesn’t look at the affordable housing agenda from just the 500,000 units perspective, but thinks of it as a combination of all the projects being undertaken by various stakeholders. For instance, there is the civil servant housing project,  in which the government has allocated Sh1.5 billion for building houses units for the police and Kenya prison officers.

Second, the slum upgrading scheme as well as projects spearheaded by individual county governments, in particular, Nairobi County’s Urban Renewal project, whose first phase is expected to bring to the market 14,000 units and Mombasa County’s 30,000 affordable houses project that is underway.

Kiambu has also proposed to put up 12,500 affordable houses. These projects, if well executed, leave Mr Omollo optimistic that the government can achieve twice as much as proposed.

SERVICED LANDS

“We are looking at the  four years that the government has to deliver the 500,000 units. That means 150,000 units every year. These are basically one-, two- and three-bedroom houses. Considering that the average size of an affordable house is 50 square metres, and assuming the cost of building one square metre is Sh35,000, the total construction cost for the 150,000 units is about Sh250 billion.Now, infrastructure cost for putting up sewer system, roads, water, and electricity takes about 35 per cent of the total, and this is what the government is pledging to cover, besides providing land," explains Mr Omollo.

“Thirty-five per cent of 250 billion is approximately Sh88 billion, and if you deduct the Sh6.5 billion that has been set aside, you have a Sh81 billion deficit. We would have to wait and see how much each county allocates for affordable housing, but each would have to allocate at least Sh1.5 billion  so that we can cover the Sh88 billion. Remember this project will be undertaken by the national government and the county governments in partnership with private developers,” adds Mr Omollo.

He notes that a factor to bear in mind is some counties  require more affordable houses than others, so the allocation will vary. For instance cannot compare the demand for housing in Nairobi with a sparsely populated county like Turkana.

Dr Kieti believes that the government should continue with its strategy of enabling rather than providing  housing. He says the government should provide housing  only to  essential workers such as civil servants, the police and the defence forces.

ITo enable private developers to build affordable house,  Dr Kieti, says  the government should come up with innovative ways of supplying serviced land. In this regard he proposes land readjustment programmes saying they have worked elsewhere.

“This is an arrangement where the national or county governments agree with individual landowners, such that, instead of sitting on low-value unserviced land, they allow the government to service it by providing essential infrastructure such as sewer lines, water, electricity, and access roads. In return, the landowner gets back fewer acres of highly valued land.

For instance, if you had 20 acres, you get back 15 acres of high-value serviced land while the government keeps five. The government does not have to provide the essential infrastructure, it can partner with a private developer to put up the infrastructure and in return keep part of the land. It can also give up its share for affordable housing. ”

TRUST FUND

While applauding the government for setting up the Kenya Mortgage Refinancing Company, an idea he has been championing, Mr Kieti says another strategy  the government can ensure there is adequate supply of serviced land is by setting up a housing infrastructure trust fund, to which both the national and the county governments contribute.

County governments then borrow from the kitty to expand the housing infrastructure in their areas. He cites Nigeria as an example where this method has had tremendous impact in the provision of housing.

Mr Francis Kamande, the National Housing Co-operative Union national chairman, says that while he is happy that for the first time the government has allocated money for infrastructural development to open up neighbourhoods in readiness for affordable housing, he is sceptical about the funds allocated, which he considers a drop in the ocean.

“If we are to succeed in putting up close to a million affordable houses, we are talking of overall expenditure in hundreds of billions of shillings. These are figures beyond the government’s ability in one sector.

For the first year, what the government has allocated in terms of direct investment is Sh6.5 billion. In this respect, you will agree with me that we are not seeing much input from the Treasury and the conclusion therefore, is that the success of this project depends on how well the public-private partnerships work,” says  Mr Kamande.

He notes that one of the major issues that has dogged PPPs in the past is government bureaucracy. Mr Kamande recommends that a one-stop shop be set up where all the  government bodies   involved in housing come together to address matters concerning the project, such as approvals, so that developers get all the services in one place.

Nakuru-based financial adviser Dalton Walukaya, also the director of Visalife Financial Services Ltd, says the budget signifies a good start to the journey on affordable housing. However, he says the success of the housing plan boils down to how well the project is implemented and managed. He cites corruption, expressing concern that the money could end up in people’s pockets like the National Youth Service scandal.

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Measures to deliver affordable housing

One of the major highlights touching on property is Treasury CS Henry Rotich’s announcement of the government’s intention to amend the Employment Act to create a kitty to finance low-cost housing.

“In order to promote the development of low-cost housing for Kenyans, I propose to amend the Employment Act to provide that an employer shall contribute to the National Housing Development Fund in respect of each employee in his or her employment 0.5 per cent of gross monthly emolument subject to a maximum of Sh5,000, while the employee will contribute 0.5 per cent of their monthly gross earnings,” Mr Rotich said last Thursday.

He, however, dropped his earlier proposal to increase taxation on profits  made from the sale of property.

Another highlight is the announcement that low-cost housing investors will get their corporate taxes halved to 15 per cent if they put up least 100 units per year.

But mobile money transfer service users are bound to feel the pinch as the tax on  transaction fees has been increased from 10 per cent to 12 per cent.

The tax for imported vehicles with an engine with a capacity above 2500cc has also been increased to 30 per cent.

 The government is banking on revenue raised from these two avenues to fund affordable housing and universal healthcare.

Mr Rotich further said the government plans to establish a national social housing development fund and also strengthen the National Housing Corporation to take up more strategic roles in resource mobilisation and management of tenant purchase schemes. It will also be expected to  provide alternative financing strategies for low-cost housing and the associated social and physical infrastructure.