Opinion and Analysis
Home builders will struggle to understand the
rationale of offering cheap loans to contractors from a kitty funded by
charging them a 0.5 per cent levy on the value of new projects.
The National Construction Authority wants to build a fund
capable of generating Sh1.7 billion annually and offer loans of up to
Sh5 million with interest rates of between four and six per cent.
The big question is why the authority is punishing
home owners instead of reviewing its procurement laws to provide for
partial upfront payment to small contractors unable to raise funds to
kick start work on state tenders.
The upfront payment has worked best in the private
sector and should be emulated in selective tenders where the state is
pursuing affirmative action instead of calling on the private sector to
plug this void.
Such funds have had a poor performance including
high rates of non-performing loans or cash sitting in commercial banks
and not benefiting their targeted recipients.
For the housing levy, there is an added burden
bearing that the kitty is being funded by private sector and not the
Treasury as is the case with funds like Uwezo.
Already, there are fears that the 0.5 per cent levy
will slow down supply of homes in an economy gripped by a deficit
following decades of underinvestment in the property market.
Coming days after the Treasury more than doubled
duty on iron and steel imports, this construction levy will erect an
additional hurdle to home ownership.
The National Environment Management Authority
(Nema) demands a minimum charge of Sh10, 000 or 0.1 per cent of project
cost for environment impact assessment.
The Mining ministry, from last September, started
collecting a two per cent royalty on construction materials — increasing
the cost of quarry stones, concrete blocks, hardcore, ballast and sand.
This is clear that the levy will hit large scale
developers hard. At the entry level figure of Sh5 million, a contractor
has to pay an additional Sh25, 000 or face the law.
But what’s the point of drafting regulations that
do not take into account their impact on the building industry or the
effectiveness of the fund?
First the fund can advance loans of up to Sh5
million, which is a measly figure compared to the average construction
contract in government.
Then, the kitty looks set to be exhausted by a few
contractors in what will defeat the purpose of having a broad swath of
investors ride on the cheap loan.
We, therefore, urge the government and its agencies
to rethink the levy and the construction fund plan as well consider
alternatives including creating partial upfront payment for tenders
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