Kenya Government Incentives for Investors in Real Estate

The Kenya government is helping the private sector investor to meet an annual housing demand of 150, 000 housing units. Currently the supply is estimated at 40,000 units per year. And the government is in a hurry to fill up the gap, thus creating an excellent opportunity to make money for real estate investors.

The government has many reasons for taking housing seriously.The Universal Declaration of Human Rights of 1948 recognizes the right for everyone to have descent housing.Secondly, housing is a key sector for stimulating economic growth. Its forward and backward linkages go deep affecting areas such as building materials production, transportation, marketing and even the Jua Kali sector. Experts say the sector has a 7 to 9 times multiplier effect.

What this means is there will be increased employment, reduced expenditures on health, improved security, and of course, increased tax base.

The annual housing demand in urban areas is estimated at 150,000 houses. But supply on the other hand is estimated at 40,000 houses, resulting in a supply gap of approximately 110,000 housing units. And even then, more than 80 per cent of new houses produced are for high and upper middle-income earners yet the greatest demand is for low income and lower middle income that constitute 83 per cent of the demand.

These are the reasons why the government is giving the private sector a chance and incentives to join in this lucrative, no-loss sector. More of the incentives are targeted at investors putting up houses for the low income groups.

The varieties of incentives include those under the Tax Act. Under this, investors are given:

a) Tax Deductibility for Housing Loans

The interest you pay on money you have borrowed to buy or improve your house is refunded through tax deductions. This is allowed for taxable income up to Shs150, 000 per year. And your loan must be from:

1. A bank or a registered financial institution
2. A licensed insurance company
3. A registered building society

b) Contributions to Home Ownership Savings Plan (HOSP)

If you operates a home ownership savings deposit plan, you have several tax related incentives.

1. You are entitled to deduct from your taxable income an equivalent of Kshs. 4,000 per month for a maximum period of ten years
2. Your income from the plan is not taxed
3. And you will not pay withholding tax on interest earned on balances up to Kshs 3 million

c) Lower Tax on Housing Bonds

If you have a little more money to spare, open an HDB fixed account and you will get a set of incentives:

1. You will pay a withholding tax of only 10% compared to the 15% rate normally charged
2. You will get special considerations when applying for a mortgage

d) Prescribed dwelling house

This obscure phrase actually is a house occupied by your employee and which you, as a businessman own.If you provide your employee with such a house, qualifies you to deduct1/40 of the capital expenditure per year from your taxable income.

e) Tax deductibility for expenditures for social infrastructure

Expenditure of a capital nature incurred by a person on the construction of a public school, hospital or any similar kind of social infrastructure and is given prior approval by the Minister for Finance is tax deductible.

f) Tax deductibility of interest from infrastructure and social services bonds

1. Interest income accruing from all listed bonds used to raise funds for infrastructure and social services is exempt from tax provided that the bonds shall have a maturity of at least three years.
2. Expenditures of a capital nature incurred with a prior approval of the Minister for Finance, by a person on the construction of a public school, hospital, road or any similar kind of social infrastructure is tax deductible.

g) Industrial Building

Industrial building deduction on capital expenditure incurred on the construction of an industrial building to be used in a business carried on by a person or the lessee for any year of income in which the building is so used.

1. One-tenth per annum for a hotel which the commissioner has certified to be an industrial building
2. One-tenth per annum for a hostel or an educational building certified by the commissioner
3. Five per cent per annum for residential rental building constructed in a planned development area, approved by the Minister responsible for housing

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