How the National Housing Development Fund affects you.
4 months ago
We now have a new contribution/deduction to look forward to – the National Housing Development Fund which is now alive following presidential assent to the Finance Bill, 2018 (now, the ‘Finance Act, 2018’).
The Finance Act, 2018 has introduced a new Section 31A to the Employment Act, 2007. The section provides as follows: –
An employer shall pay to the National Housing Development Fund in respect of each employee –
(a) the employer’s contribution at one point five per cent of the employee’s monthly basic salary; and
(b) the employee’s contribution at one point five per cent of the employee’s monthly basic salary:
Provided that the sum of the employer and employee contributions shall not exceed five thousand shillings monthly.
(2) The benefits to an employee shall accrue as follows-
(a) for employees who qualify for affordable housing, the contributions accrue to the employee and shall be used to finance the purchase of a house under the affordable housing scheme; or
(b) for employees who are not eligible for affordable housing, upon the expiry of fifteen years from the date of the start of making the contributions, or after the attainment of retirement age, whichever is sooner-
(i) a transfer of their contributions to a pension scheme registered with the Retirement Benefits Authority;
(ii) a transfer of their contributions to any person registered and eligible for affordable housing under the National Housing Development Fund; or
(iii) a transfer of their contributions to their spouse or dependent children; or
(iv) to receive their contributions in cash;
Provided that contributions paid out in cash shall be subject to tax at the prevailing rates
(3) All contributions shall get a return based on the return on the Fund;
(4) The employer shall remit both employee and employer contributions to the National Housing Development Fund before the ninth day of the following month;
(5)…a penalty of five per cent of the contributions shall be payable by the employer for each month or part thereof during which the contributions remain unpaid…
(6) This section shall become effective upon the Gazettement of Regulations prescribing the requirements for qualification to the scheme by the Cabinet Secretary responsible for housing…
Employers are required to remit contributions to the Fund by deducting 1.5% from the employee’s salary and contributing the other 1.5%, subject to a maximum total contribution of Kshs. 5,000/=.
It has been said that the creation of the National Housing Development Fund is meant to help the government realize its goal of delivering 500,000 affordable housing units in five (5) years as a means to stop the expansion of slums in informal dwellings in major towns countrywide.
How the National Housing Development Fund will work
The deductions from employees and contributions by employers are expected to raise about Kshs. 5.7B annually which will go to the Fund which is yet to be established.
The contributions will be accessed through a tenant purchase scheme for those in the low-cost housing bracket. The regulations on how the fund will work, who falls under the ‘low-cost housing’ bracket etc. are yet to be passed. The Section will only take effect once the Regulations are passed.
For those who do not manage to secure housing under the scheme, after 15 years of making contributions or upon attaining retirement age, whichever comes earlier, the total contributions, topped up with a return on the contributions, will be refunded using one of the following means: –
- being transferred to a registered pension scheme;
- being transferred to a person eligible for affordable housing;
- being transferred to a spouse or dependent children of the employee; or
- being paid out in cash.
Issues arising out of the NHDF plan
- The fact that not all contributors will eventually benefit from it;
- Issues of misappropriation of the funds;
- The imposition of this kind of contribution upon employees who have already acquired homes or those who are already servicing mortgages for houses acquired privately;
- For the employers, the obvious increase in the wage bill;
- The fact that the contribution is also only imposed on employees and employers and not the rest of the public.
Article 43(1)(b) of the Constitution, 2010 gives every Kenyan the right to accessible and adequate housing, and to reasonable standards of sanitation. The realization of this right is placed on the National Government. The National Government has made this right one of its four national agenda.
What does the ILO have to say?
The Workers’ Housing Recommendation, 1961 (No. 115), recommends the drafting of a national policy to promote the construction of housing and related community facilities with a view to ensuring that adequate and decent housing accommodation and a suitable living environment are made available to all workers and their families. This can be done through: –
- granting loans at moderate rates of interest and other direct and indirect financial incentives; and
- taking appropriate measures in accordance with national practice to stimulate saving by individuals, co-operative societies and private institutions which can be used to finance workers’ housing.
Kenya has not formally adopted the recommendation and I do not think the amendments to Section 31A have anything to do with the recommendation.
How can we make sure that we get back our money after 15 years of contributing? Until this issue is settled, I don’t think we should be comfortable with this new introduction.
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