Kenya’s low cost housing agenda – National Housing development fund explained

Kenyans’ now have a new contribution to look forward to come January 2019 following the presidential assent to the Financial Bill 2018, now Financial Act 2018. The Act, which was approved on September 21st, 2018 has introduced a 1.5 percent mandatory levy on a worker’s gross salary with the monthly deduction capped at Ksh 2500 for individuals earning a basic salary of Ksh 166000 and above. In the Act, employers are required to contribute a similar amount for every employee to the National Housing Development Fund. This caps each worker’s contribution at a maximum of Ksh 5000.



When the bill to fund the housing pillar was first introduced to the public, there was a lot of resistance from employees and employers alike. Employers were and are still against the contributions towards the NHDF mainly because this will increase the wage bill. Some employees, on the other hand, are opposed to the contributions for several reasons; first, it was not clear whether all contributors would eventually benefit from it. Second, the public was and is still afraid that funds might be misappropriated. Third, some employees are already servicing mortgages for houses they have acquired privately or through a mortgage scheme provided by an employer and will still be compelled to contribute to the fund, and lastly, this contribution is only imposed on employees and employers, not the rest of the public.



Since the passing of the bill, however, it is now clear that all employees who contribute will benefit from NHDF – assuming funds are safeguarded. Employees who do not use their contributions to finance the purchase of a house under the affordable housing scheme will get a monetary refund. After 15 years of making contributions or upon attaining retirement age before completing 15 years, the employer and employee contribution, topped with a return of the money, will be refunded using the following means; transfer of funds to a registered pension scheme, transfer to a person eligible for affordable housing, transfer to a spouse or children of the employee, or four, a cash payout. At this point, it is important to note that persons with a basic salary of Ksh 100000 and above do not qualify to purchase a house under the scheme. And, where contributions are paid out in cash, they will be subject to tax due to the accrued return.

Although this will be unfair for individuals who do not get a house under the scheme as those who utilize their contributions to finance the purchase of a house will not suffer tax, this is part of an effort to ensure a surplus of funds for the housing agenda.



The tax laws ( Amendment) Act, 2018 also introduced an affordable housing relief from tax equal to 15 percent of gross emoluments subject to a limit of  Ksh 9000 per month to be enjoyed by those who are eligible to apply, have applied, or are saving for a purchase under the affordable housing scheme but have not been allocate a house. This relief may reduce tax payable by an employee by a larger amount than the amount they contribute to NHDF. However, it is yet to be seen whether these additional regulations will make the public more receptive to the idea of contributing towards the NHDF, especially in light of the current economic situation in Kenya, where the cost of living is very high.



From the Act, it is clear that the employer is an agent of the fund by ensuring that deduction and remittance are made. The new law is expected to affect employment contracts.

Some employers provide house allowance to their staff, while others provide mortgage schemes. Through section 31 of the employment act, a lot of employees especially those in senior management have managed to be awarded housing allowance. Some employees have access to staff mortgage schemes. As such, it is clear that the new Finance Act 2018 will not be of much benefit to this class of employees.

What’s easy to decipher is that employers and individuals in self-employment will be the biggest losers.  While one party will have to deal with an increased wage bill, the other will be left out. The bill is not clear on how those in self-employment will be able to participate in the scheme. The public reckons that there should be a provision for voluntary participation to enable this group of people to contribute towards the scheme.


All in all, the government and relevant agencies will need to provide clarifications on how the NHDF will operate in order to create confidence in it and to reduce the level of suspicion that the public has in the law. While we try to follow in the footsteps of other countries that have taken similar paths, it will be important to Kenyans if the decision makers and agencies involved in the actualization of the scheme consider and learn from the mistakes of other African countries. Similarly, developers involved may need to engage the services of a credible consultancy firm to determine the cost-to-benefit ratio tied to such projects in application to different locations across the country.

This article is written by Buildafrique Consulting Group; a multi-disciplinary consulting group of four (4) specialized companies, that offers End-to-End Real Estate and Development Solutions to Investors, Developers, and Prospective Home Owners in Kenya and the Regions.

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