Good news: Homebuyers financed by saccos to get tax relief up to Sh25,000

The Co-operatives ministry is proposing an amendment to the Income Tax Act that would extend tax relief to first-time homebuyers who receive funding from savings and credit cooperative societies (saccos). The amendment, which is expected to take effect from July, would provide a tax relief of up to Sh25,000 on their monthly salary. Co-operatives Cabinet Secretary Simon Chelugui has pledged to work with the Kenya Revenue Authority to implement the changes to the law, which would enable saccos to provide mortgage reliefs to members who obtain loans to buy, build, or improve their homes.

Currently, the deductions apply only to borrowers under commercial banks, mortgage lenders under Banking Act, building societies, and the National Housing Corporation’s tenant purchase scheme. However, saccos have been identified as the primary drivers of demand for the affordable housing program by the Kenya Kwanza administration, which aims to construct 250,000 units annually by providing funding to prospective homeowners.

To increase the scope of mortgage offerings, Mr. Chelugui has urged saccos to provide long-term loans to their members, just like any other financial institution. The Kenya Mortgage Refinance Company (KMRC) was formed to partner with private lenders and derisk the mortgage market by providing long-term funds to banks and saccos for onward lending at an annual interest of 5%. Recipient banks and saccos are expected to lend out cash to homebuyers at single-digit interest rates.

Although the retail mortgage market in Kenya is thin, with an estimated 26,723 home loan accounts worth Sh232.7 billion in 2021, the KMRC believes that the growth area for the company is through saccos. However, the high cost of land and building materials has been a significant impediment to the construction of affordable housing units. According to research by Nairobi-based Integrum Construction Project Managers, the average cost of building a house was estimated at Sh34,650 – Sh77,500 per square meter early last year, up from Sh33,450 – Sh72,400 per square meter in late 2020. Nevertheless, measures have been put in place to reduce construction costs, including exemption of Value Added Tax (VAT) on importation and local purchase of goods for the construction of houses under the affordable housing scheme.