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Relief as Housing Fund plans are suspended

The deductions estimated at Sh55b a year were to go into a proposed national kitty and to be accessed through a tenant purchase scheme for low-income housing brackets

Employers and employees are sighing with relief after the Employment and Labour Relations Court suspended the 1.5 percent levy that was to be charged on workers’ monthly pay to create a National Housing Development Fund.

On Wednesday, Justice Hellen Wasilwa suspended the levy, which was to take effect on January 1, following an application by the Central Organisation of Trade Unions (Cotu).

The union is resisting the levy on grounds that the public did not participate in its creation and there is no guarantee of transparency during its implementation.

Earlier, the government had warned that employers will in future be punished if they fail to deduct money from incomes of employees that will go towards the fund.

Draft regulations released by the Cabinet Secretary for Transport, Infrastructure, Housing, Urban Development and Public Works, James Macharia had reminded employees that it’s an offence for an employer to fail to inform a worker about the obligation of his or her duty to contribute to the fund.

The Finance Bill 2018, which was approved by President Uhuru Kenyatta on September 21, had introduced a 1.5 per cent mandatory levy on a worker’s gross salary with in a cut that will chop salaries by up to Sh5,000. 

Employees are expected to pay up to Sh2,500 and their employers a similar amount for every employee to the fund — but which both Cotu and the Federation of Kenya Employers (FKE) oppose.

Contributions were scheduled to start on January 1, 2019. Although Treasury Secretary Henry Rotich had put the levy at 0.5 per cent of gross salary – with President Kenyatta raising the tax to 1.5 per cent —the rate is expected to go up progressively to five per cent as proposed by the Ministry of Housing and Urban Development.

Affordable housing

The fund is expected to be the catalyst for increased supply of affordable housing by private developers and as the bridge to the demand of affordable housing by low- and middle-income Kenyans.

It is envisaged to provide affordable long-term financing to homeowners through a nationwide Tenant Purchase Scheme (TPS).

Longtime real estate and construction expert, James Baraza, says the deductions put at an estimated Sh55 billion a year will go into the fund.  It can also be secularised for mortgages for those with high incomes.

The contribution can also be used as a deposit when a worker wants to bargain a mortgage or interest rate buy-back to access cheaper loans.

The Housing Department is  expected to open a website, which will assign an individual an automated score on whether they fall under low-cost housing bracket, social housing, or the mortgage cap. To compute the data, a user will be required to enter details such as M-Pesa transactions, bank records, and Kenya Revenue Authority (KRA) pin number.

Developers are to build up to 2,000 houses in every country annually and those prequalified in the scheme will book a unit and begin paying for the off-plan units after registration, says Baraza.

On its part, the State was to run a lottery annually to match the people who have booked to the number of houses available to prevent a situation where rich individuals buy several units and rent them out, thus defeating the plan.

Workers who will have made contributions to the housing fund will be given the first priority to buy the low-cost houses.

The State will lock out cartels trying to buy and resell the houses at a profit by using a yearly lottery scheme. “In terms of priority, the first ones in line to get the affordable housing will be the contributors,” said Rotich.

“This is how it works in other countries… we will determine whether contributors will access the homes on first-come-first-served basis or use a lottery system as it happens in Ethiopia,” he added.

However, those earning Sh100,000 and above do not qualify for the affordable housing scheme. Such workers’ contributions will be transferred to their pension upon attaining retirement age.

Cotu has rejected the plans to deduct 1.5 per cent of workers’ salaries meant to finance low-cost housing, warning that the funds might go into corrupt hands.

Last week, Cotu Secretary General Francis Atwoli said despite the president issuing a directive in July to Housing PS Charles Hinga to constitute a board to discuss how the deductions will be used, the PS has not held consultations with the workers.

“We want to know who will be involved in these deduction exercises. Nobody should just wake up and say I want your cash,” said Atwoli.

FKE has maintained their opposition to the monthly deductions, saying it will increase production costs and burden employees even as the government defends the move. According to the Kenya National Union of Teachers (Knut),  teachers are already too poorly paid.

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