President Ruto’s Affordable Housing Prices & Payment Plan - Money Weekly News Roundup

It is that time of the week again when we take a comprehensive look at the news headlines over the last seven days, and dissect those that can affect your money. Welcome to yet another edition of Money Weekly. 

Earlier this year, the government introduced a 1.5% housing levy, how is that going? The first batch of affordable housing funding has been released, alongside details of the houses to be built. 

On taxes and levies, the Revenue Collection Assistants (RCAs) have hit the ground running, and their work seems to have started to bear fruits. The Kenya Revenue Authority (KRA) is now serving those who owe taxes letters of tax demand. 

On the other hand, the shilling continues to struggle, reflecting the current economic conditions. The Central Bank of Kenya (CBK) is failing to raise enough debt through bonds, it is increasing the amount of coins in circulation, and the trade deficit is shrinking.

Looking into how the government has performed so far, the first quarter of the 2023/24 fiscal year sees fewer taxes collected and less money being spent on development expenditure.

The cost of living keeps getting steeper for the everyday Kenyan as Kenya Power triples its power importation amid a contracting saga where the Attorney General accuses the power distributor of not seeking legal guidance before entering into costly power purchase agreements with independent power producers.

Let’s dive in.

Govt Rolls Out Plans for the Affordable Housing Programme

The government has released its plan for the Affordable Housing Programme (AHP) alongside the first batch of financing. Affordable Housing is a project by the current regime which aims to build at least 250,000 units a year. 

The programme is meant to address the housing shortage in the country and help decongest slum areas. In addition, the government wants to use the housing project to create jobs for the youth.

In July this year, the 1.5% housing levy deductions started. Before the implementation of the levy, the government had received significant pushback, but the levy was eventually implemented. 

Part of the protestation was that the levy was deemed to be double taxation since it is calculated gross-on-gross, and the same gross salary is used to calculate pay-as-you-earn (PAYE) income tax.

Nevertheless, the first batch of financing amounting to Ksh10 billion has been released to the National Housing Corporation (NHC). 

“It is important to appreciate that firstly National Housing Corporation has land in almost every part of the country,” David Mathu, CEO of National Housing Corporation, said.

“So we could quickly be in a position to utilise this fund because we have ready titles for our property, and, therefore, implementing these projects becomes much easier by way of using the Corporation because the land is already available as part of our assets,” he added.

In addition to releasing the funds, the government showed its plan for allocating the houses. The houses will be allocated on a first-come-first-served basis, where one needs to pay a deposit to secure a unit. 

The houses will be divided into three categories, David Mathu said: “AHP [Affordable Housing Programme] is not just affordable housing. We are looking at three products: social housing, affordable housing and market-driven products, which are affordable.”

Social housing units will include one-room (20 sqm), two-room (30 sqm), and three-room (40 sqm) units estimated to cost Ksh 42,000 per square metre. 

To secure a unit under the social housing category, that forms 20% of the total units available, you will need to raise a 10% down payment and pay the remainder in a rent-to-own model over 30 years.

• For the 1-roomed 20sqm unit priced at Ksh840,000, the monthly payments will be Ksh3,200
• For the 2-roomed 30sqm unit priced at Ksh1, 260,000, the monthly payments will be Ksh4,800
• Fot the 3-roomed 40sqm unit priced at Ksh1,680,000, the monthly payments will be Ksh6,400.

The Affordable housing units will include studio apartments (20 sqm), two-bedroom (40 sqm) and three-bedroom (60 sqm) units estimated to cost Ksh48,000 per square metre. 

A similar 10% down payment will be required to secure a unit under the AHP units with the remainder staggered over 30-years in monthly instalments. Units under the “affordable” category will account for 50% of all the houses to be built under the programme.

• For a 20sqm studio apartment priced at Ksh960,000, the monthly payments will be Ksh5,200
• For a 40sqm 2-bedroom apartment priced at Ksh1,920,000, the monthly payments will  be Ksh10,400
• For a 60sqm 3-bedroom apartment priced at Ksh2,880,000, the monthly payments will be Ksh15,600

The market-driven houses cost the most at Ksh72,000 per square metre, offering two-bedroom (60 sqm) and three-bedroom (80 sqm) houses.

A similar 10% down payment will be required for these units that will account for 30% of all houses to be built under this programme. The repayment period under the rent-to-own arrangement will also be 30 years, or 360 months. 

• For a 60sqm 2-bedroom apartment priced at Ksh4,320,000, the monthly payments will be Ksh31,300
• For a 80sqm 3-bedroom apartment priced at Ksh5,760,000, the monthly payments will be Ksh41,800

The new categorisation also indicates that workers earning above Ksh150,000 per month will be eligible to purchase houses under this State-funded programme which was previously not the case. However, they will be subjected to higher rates. 

KRA Stringent Efforts to Boost Tax Collections to Meet Target

The taxman is working hard to ensure it hits the revenue collection target for the financial year 2023/24, which amounts to 2.57 trillion. 

The latest effort that seems to be bearing fruits is the deployment of Revenue Collection Assistants - RCAs. These are paramilitary-trained officers sent by the Kenya Revenue Authority (KRA) to monitor and investigate tax compliance, especially in the informal sector.

The efforts of the RCA have seen the taxman start to issue letters of tax demand to the businesses found to be non-compliant. When an RCA visits a business, they demand to see the premises business permit, cash and receipt books, mobile money statements, M-Pesa till and Paybill numbers, wages schedules, tenancy agreements, and rent receipts. 

As this is being implemented, the KRA has noted an increase in businesses abandoning mobile payment services such as Paybill and Pochi la Biashara and asking for cash instead. 

“It is already noted that [closure of Lipa Na M-Pesa merchant accounts] is what is happening in the market. We are working on strategies to work around this,” Caroline Rotich, the KRA’s chief manager in the Domestic Taxes Department, said.

She reiterated that they are “working together with Safaricom to facilitate integration. We will get information on these drop-outs so that we can do follow-ups and compliance checks.” 

As the KRA is working hard to bring everyone, both in the formal and informal sector, on board the tax wagon and seal loopholes, it is also offering an amnesty programme that allows taxpayers to apply for a waiver of penalties and interest accrued until December 2022. 

With the amnesty programme in its seventh week, the taxman says Ksh3.4 billion has been collected so far against the targeted Ksh50 billion. The amnesty programme is expected to run up to June 30, 2024. 

In the meantime, 17,000 taxpayers have applied for amnesty, with the revenue authority expecting to collect a total of Ksh10.7 billion from these taxpayers.

CBK-Investors Standoff as October Treasury Bond Sale Flops

Kenyan investors and the Central Bank of Kenya have found themselves in a standoff over interest rates. The interest rate tensions come after the recent October Treasury bond sales underperformed. The government was only able to raise Ksh6.3 billion, representing only 20% of the target Ksh35 billion.

Investors' demand for higher returns pushed the interest rates to a 16-year high, translating to interest rates as high as 18.46% for five-year bonds and 17.96% for two-year bonds. This standoff highlights the government fiscal deficit leading to rising domestic debt costs. 

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Speaking of deficits, Kenya's trade deficit shrank by 9.7% in the first eight months of 2023. This drop is from approximately Ksh1.12 trillion in 2022 to Ksh1.01 trillion - a difference of Ksh108.42 billion.

The trade deficit is attributed to falling imports and increasing exports. The imports have fallen by 2.05% to Ksh1.67 trillion, while exports have increased by 12.63% to Ksh656.05 trillion. 

This is amid the falling value of the shilling and high taxes, which has led to a rising cost of living that has seen the Central Bank of Kenya (CBK) release coins valued at Ksh494 million into the economy. The release of these small denominations is an indication of the tough times in the country.

The value of the coins in circulation in the country stands at Ksh10.56 billion, which is 4.1% higher than Ksh10.41 billion in 2022. Before the release of these coins, the CBK had removed coins valued at Ksh76 million.

Revenue Growth Hits 5-Year Low Despite Tax Increase

Tax collection for the first quarter of the 2023/24 fiscal year increased slowest in the last five years - excluding the pandemic year. The slow increase comes amid the taxation measures employed by President Willian Ruto’s administration.

Between July and September this year, the taxman collected Ksh 524.26 billion, representing a 10.55% growth, down from 11.6% over the same period in 2022. The slow growth is a reflection of the tough economic conditions as seen in the rising interest rates and falling consumer demand.

On the other hand, expenditure on development in the first quarter also hit a five-year low. The ministries, departments and agencies spent a total of Ksh31.64 billion, a significant drop from Ksh 68.06 billion during the transition period in 2022.

The slowdown in development expenditure negatively impacts job creation and government revenue generation.

Kenya Power Triples Imported Electricity

Drought conditions in the country have led to a decrease in hydroelectric power production. To cover the difference, the government has relied on importing power, with power imports from Ethiopia being the lion's share - 70%. 

In the first eight months of the year, Kenya imported 594.01 million kilowatt-hours (kWh) of electricity, a significant increase of 185% from 208.47 million kWh that was imported last year. This surge in imported power has significantly contributed to the rising power prices.

To increase the power supply in the country, Kenya Power entered a power purchase agreement with independent power producers (IPPs). 

While speaking to the National Assembly Energy Committee, Kenya's Attorney General - Justin Muturi, emphasised that Kenya Power entered these agreements without legal input from the State Law Office. He expressed that all government entities are mandated to seek legal clearance when entering contracts, but Kenya Power failed to do so.

The government is considering changing the fuel anti-adulteration levy to a floating charge. The levy was first implemented to prevent fuel adulteration. Still, the government sees it now as an opportunity to collect more when fuel prices rise and use the collected money to fund the distribution of gas cylinders to poor households.

Other News in a Snapshot

• Catchphrase trademarking is the latest trend in town, with “Mambo ni Matatu” being trademarked by President William Ruto. This means that no one is legally allowed to use the phrase popularised by the president to gain financial gain. The trademark covers usage in clothing, games, advertising, education and personal services, among others.
• The 2023 Gross County Product (GCP) report shows that Kenya’s economic activities are concentrated in a few counties. Agriculture is the only sector with balanced distribution, with half of the counties contributing at an above-average rate to industry productivity. Nonetheless, Nine counties outperformed the others in Manufacturing, construction, services, mining, and electricity sectors. Only five counties accounted for two-thirds of manufacturing productivity.
• Kenya introduced the Real Estate Investment Trusts (REITs) legislation in 2013 to make investing in the real estate market easier. REITs’ selling proposition is liquidity, transparency and exemption from double taxation. However, with all these benefits, we only have three CMA-approved REITs available. The deterrence has been attributed to high capital requirements, administrative overheads and uncertainty about future tax policies.
• Naivas’ Chief of Operations, Peter Mukuha, stated that the retail giant is still in its growth phase and is not ready to list yet. He highlighted that they currently have strong partners and are moving on with their expansion plan, where they plan to open two more branches before the end of the year. Mr Mukuha spoke during the launch of the 100th Naivas branch on King'ara Road in Lavington, Nairobi, which also saw the company cross the 10,000 employees number.