Interview: Mucai Kunyiha
How can government and construction companies come together to implement the Big Four agenda?
MUCAI KUNYIHA: There are various opportunities for the private sector to work with the government to achieve the agenda’s housing goals. On one side, the public sector is in charge of the development of the counties’ spatial and urban master plans, as well as different incentives like stamp duties, tax rebates and infrastructure. The state is also taking action on the formation of a housing fund, the implementation of a mortgage refinance company, and the establishment of joint ventures and public-private partnerships (PPPs) on public land. At the same time, entrepreneurs are interested in the markets of secondary and tertiary cities, new building and unit design, and incremental home purchase strategies. Firms are likewise promoting innovation in the home finance services offered by banks, savings and credit cooperative organisations, and rent-to-buy schemes.
What incentives should the affordable housing plan offer to facilitate private construction activity?
KUNYIHA: The most convenient measures to take are as follows: the duties charged on imports of affordable housing materials should be eliminated; the value-added tax on those same goods should be zero-rated; and the National Construction Authority’s levy of 0.5% on contracts valued at over $49,000 should be repealed. Moreover, if the taxes imposed on the incomes and dividends from approved projects were reduced to 10%, corporations could move these profits into special purpose vehicles and take on repeat projects. It would be additionally beneficial if all funds spent on infrastructure were treated as capital expenditures, such that they could be completely offset within the year expensed against the income tax.
Access to capital remains a challenge in Kenya, and the administration should avoid borrowing excessively from local commercial banks in order to maintain a sustainable budget deficit. This policy should be coupled to a negotiation with commercial banks over reserving at least 5% of their deposit base for mortgage finance. Lastly, the state could provide support by making all rental incomes less than $147 per month completely tax-exempt.
What sorts of challenges do construction companies face in acquiring land and title deeds?
KUNYIHA: Land parcels do not have access by default to basic facilities, and developers must often shoulder the cost of infrastructure. In such cases, a plot and those elements typically make up 10-35% of a development’s cost. Moreover, builders must deal with the bureaucratic difficulties of property registration, where the process has been devolved to county authorities that work at different levels of efficiency. It takes an average of nine procedures and 61 days to register property in Kenya, which is central to its ranking 121 out of 190 in that regard in the 2017 Doing Business Survey.
How are builders affected by credit inaccessibility and current mortgage penetration rates?
KUNYIHA: Access to mortgage credit is indeed a considerable obstacle to construction. For the average household, mortgages are difficult to obtain for several reasons. Ordinarily, their short terms make them expensive, and it takes significant time and funds to complete the titling process.
What role do you see foreign direct investment (FDI) having in the real estate sector?
KUNYIHA: There are opportunities for foreign investors in the Kenyan real estate space and particularly on the affordable housing front. This is primarily due to the fact that FDI also brings with it a cheaper source of funding. Our recommendation, however, is for foreign developers to partner with domestic ones so as to have access to local goodwill, expertise and knowledge, and to ensure that FDI is palatable to the local market.
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