Value Added Tax on petroleum and other products begins to impact on spending by housing developers credit, rising costs of construction materials due to the recent increase in VAT
Stakeholders in the real estate and travel sectors are yet to come to terms with the negative impact Value Added Tax has had on investments.
High cost of transport of bulky construction materials such as sand, building stones and cement means developers are not able to complete housing units on schedule. “We have yet to quantify the full impact of the tax. But stakeholders have started to feel the real impact in the housing sector in a big way,” said Riflo Industries chief executive officer, Richard Kibathi.
Kibathi told Boma on the sidelines of these years’ 27th Blue Triangle Cement Kenya Homes Expo held last week at the Kenyatta International Conventions Centre that builders use plastics in wastewater management. “The prices of plastics have gone up, so is the cost of construction materials. Transporters delivering materials want more to cover cost of fuel,” he added.
Additonally, the imposition of eight per cent Value Added Tax (VAT) and Sh18 adulteration fee per litre of kerosene from September 21 has seen retail price of paraffin jump to Sh108.41, up from Sh84.95. This has caused on average a 10 per cent rise on production costs of paints, with retail prices rising beginning this week.
According to Kibathi, this may in the long run impact on the number of clients keen on owning a home as the cost will have to be passed down to them. “Owning a home may become unaffordable,” he said.
Economic slow down
This comes at a time when the economy is slowing down. Researcher, Joseph Nguyen says a key factor that affects the value of real estate is the overall health of the economy. Economic indicators such Gross Domestic Product (GDP), such as employment data, manufacturing activity, the prices of goods, generally measure this. “Broadly speaking, when the economy is sluggish, so is real estate,” says Nguyen.
President Uhuru Kenyatta last month signed the Finance Bill 2018, which had been an issue of contention among the Members of Parliament, into law. The President’s proposition on the Bill recommended, among others, for a reduction of VAT from 16 to eight per cent on petroleum products.
“Already, we are taking longer to sell homes. The cost of cement has increased. It does not matter whether cost of cement was adjusted or not in the revised law. The truth is prices went up,” says Ken Mugo of Mahiga Homes.
Mahiga is a real estate development firm in Juja, Kiambu county, that specialises in putting up affordable houses for the middle class in the area and along Kagundo Road. “The cost of a bag of cement at present stands at Sh620, up from Sh580,” Mugo said.
According to the managing director of Homes Kenya Limited, Daniel Ojijo, over half of the Kenyan population cannot afford houses. “Many people are living in rented houses and would very much like to own their own homes, but this has been an uphill task made worse by lack of affordable housing options, lack of proper infrastructure and hampered access to loan and mortgage facilities,” says Ojijo.
In line with the government’s agenda of Affordable Housing for All, and as one of President Uhuru Kenyatta’s Big 4 agenda, the government plans to deliver a million units over the next five years of which 20 per cent will comprise social housing and 80 per cent affordable housing.
“This ultimately means that half a million more Kenyans will own homes by the end of the President’s second term,” says Ojijo, adding that the high cost may impact on the spirit of affordable housing.
Tellingly, the number of exhibitors during last week’s Homes Expo were less than expected. The expo had on average 100 exhibitors compared to April, which had 120 exhibitors.
Opening the expo earlier, Chief Administrative Secretary in the Ministry of Transport, Infrastructure, Housing, Urban Development and Public Works, Dr Chris Obure said an online portal will be launched by the end of the year through which developers will be able to showcase their products and technologies for prospective buyers.