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.
