The recent amendment to the Retirement Benefits Act that allows
partial access of money to purchase a residential house has thrown a
lifeline to the affordable housing programme.
After
much public resistance to a mandatory contribution of a housing levy
towards achieving the housing pillar of the Big Four Agenda, President
Uhuru Kenyatta had in December 2019 announced that the programme would
be voluntary.
“You all know, the
implementation of the Housing Fund Levy as a mandatory contribution, for
both employees and employers, has at every turn, been fraught with an
avalanche of legal hurdles and obstacles. But we need to soldier on with
the nobility of this programme. In this regard, and to ensure that the
implementation of the programme is not derailed any further, I hereby
direct and order that The National Treasury, the Ministry responsible
for Housing moves to Parliament, for a revision to the legal requirement
in respect to the Housing Fund Levy, to make the contribution
voluntary, with immediate effect,” the President said, marking an
about-turn on the approach towards implementation of the agenda.
Section
38 of the Act has been amended to state that “prescribed portion
accruing to a member in a scheme may be assigned and used by the member
to secure a mortgage loan or to purchase a residential house from such
institutions and on such terms as prescribed by the minister”.
The amendment is part of the Tax Laws (Amendment) Act, 2020, which President Kenyatta assented to on April 25.
Before
the amendment, the law only allowed members of retirement benefits
schemes to use up to 60 per cent of their accumulated benefit as
security for a mortgage. The amendment, on the other hand, allows
members to directly partially access their cumulative benefit and have
the option to use it as a security or access it as cash towards the
purchase of a home.
With the change from mandatory to voluntary
contributions, the plan for expanded home ownerships was sinking as the
President’s term heads to the end. But the amendment to Section 38 of
the Retirement Benefits Act
(1997)
has excited the State Department of Housing and Urban Development, with
the PS Charles Hinga hailing it as “a smart and viable provision”.
“This
change in the RBA Act makes home ownership easier for these members, by
accessing the large amounts of money they save in retirement benefit
schemes, and use these funds for a deposit payment or to further reduce
their borrowing needs when buying a home,” says Mr Hinga. The
implementation of the amendment is awaiting regulations that RBA says it
is working on, and will include the percentage of the pension that
members will be able to access to purchase a house while still
safeguarding the scheme and the procedure to be followed.
“Please
note that amendment of The Retirement Benefits (Mortgage Loan)
Regulations is underway to operationalise this law and we will advise
stakeholders once the Cabinet Secretary, National Treasury gazettes the
amendments,” RBA CEO Nzomo Mutuku said.
According
to Mr Mutuku, the amendment is laudable as it will increase home
ownership in the country as envisaged in the housing pillar of the
government's Big 4 Agenda.
For Mr
Hinga, the amendment is a godsend after his pet project, the affordable
housing scheme has hit massive turbulence after countrywide public
disapproval of the initial mandatory deduction of 1.5 per cent of the
basic salary from all employed Kenyans to go into financing the
affordable housing scheme. The planned deductions were stopped by the
Employment and Labour Relations Court in 2019 and on Jamhuri Day in
2019, President Kenyatta directed that the housing levy be made
voluntary.
Under the voluntary
programme, Kenyans who buy into the affordable housing scheme contribute
a minimum of Sh200 per month. However, the voluntary programme has
gained little traction and which is why the amendment to the RBA Act has
been welcomed by Mr Hinga.
The State
Department of Housing says there are over 300,000 Kenyans registered on
the Bomayangu portal and over 20,000 are making voluntary
contributions, which so far stands at Sh230 million. The department also
says there are 228 houses under the Affordable Housing Programme which
are ready for occupation at Parkroad, Ngara, while a total of 1,370 will
be ready by December this year.
“By
allowing for these monies to be used towards the purchase of a home,
there is bound to be increased demand. This is because many people will
now be able to afford the deposit payment required to qualify for a
home. Lenders will view the 60 per cent cash more favourably as security
and therefore qualify more people for mortgages. Others will
significantly reduce their borrowing needs and make their mortgage
payments much smaller,” said Mr Hinga.
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