The President recently assented to the Finance Bill, 2016. The Bill has a number of measures among them the reduction of tax rate for developers of the low income housing units from 30% to 15% on condition that the developer develops 400 units every year. The reduction of the tax is expected to reduce the developers’ expenses and consequently reduce the cost of the low income houses. It is also expected to encourage developers to develop low income houses. Currently, many developers are developing and selling high end properties. These properties are not affordable to a large group of middle and low income earners.
Statics indicate that most Kenyans do not have a home. They live in rented houses. They are likely to buy homes if they are sold at affordable prices. These Kenyans therefore present a ready market for developers of low income houses. Since the demand is high, developers will also enjoy economies of scale.
The condition for construction of at a least 400 houses may however disqualify some developers from this benefit for the reason that only a few are able to mobilize resources to construct such number of houses. Currently, most developers of low income houses are small companies or individuals who are only able to build a few units which they sell and use the proceeds for construction of more units. This cycle of construction is highly unlikely to result to 400 units annually.
Other incentives in this sector of the real estate industry are the reduction of cost of loans following the capping of the interest rates, availability of low costs building technologies and low cost of materials as a result of competition by manufactures.