Third Eye

Pensions key to realisation of home ownership dreams

Monday, August 16th, 2021 23:16 |
Pension fund. Photo/Courtesy

According to the 2019 census, only 23.1 per cent of urban dwellers own a house while the rest — 78.7 per cent — rent. 

While this may be good news for investors in the residential estate space, it mainly reflects the extent of unrealised dreams among hard-working Kenyans. 

Many Kenyans dream of owning a home as this promises a number of benefits such as reduced housing costs and long-term savings, an appreciating asset and above all the peace of mind with no landlords to deal with.

The main reasons majority of Kenyans have not been able to realize their homeownership dream is the high cost from all ends.

The cost of acquiring land and building is unreachable for many. Similarly, mortgage interest rates are still restrictive. 

For example, mortgage for a house valued at Sh4 million ranges at 13 per cent, an individual would be required to raise a 10 per cent deposit then part with a staggering Sh42,177 monthly for the next 20 years.

At the end of the two decades, they would have paid a whopping Sh6.5 million in interest. 

In an effort to provide decent and affordable housing, the government has made interventions to favour both demand and supply side of the equation.

Such measures include VAT exemption on construction materials, reduction of corporate tax on affordable housing by 50 per cent and reduction of import levies on supplies for affordable housing suppliers and developers.

To facilitate demand, individuals were offered a waiver on stamp duty and tax relief upon contributing to the affordable housing fund. 

The more recent move is the presidential assent to amendments to the Retirement Benefits Act in April 2020 which we anticipate will lead many Kenyans to realizing their homeownership dream.

The new guidelines mean people saving in a pension scheme are allowed to utilize up to 40 per cent of their accumulated pension savings to purchase a residential house or up to 60 per cent of it as security to a mortgage.

Ranked as the second-best in Africa, after South Africa, Kenya’s pension sector presents massive potential given the size of the young population.

The sector registered remarkable growth from Sh0.8 billion in 2017 to more than Sh1.3 trillion of Assets Under Management in 2020.

More than three million Kenyans now belong to a registered pension scheme, according to the Retirement Benefits Authority statistics. 

The provision to allow pensions scheme members to utilise part of their retirement savings to acquire homes has been widely successful in other parts of the world.

For instance, in Singapore where there is a mandatory Central Provident Fund, equal to our NSSF, pension contributions are separated into three; an ordinary account (for housing, insurance, education), a Special account (for investing at old age), and a Medisave account (for medical insurance and hospitalization expenses). 

Thus, the fund allows 23 per cent of the Ordinary account contribution to be used to pay for a house.

This structure has seen the country record a 90 per cent home ownership rate, one of the highest in the world. 

The recent developments in our legal structure are expected to have positive effects on the economy, pension sector, and individuals.

The biggest beneficiary are pension scheme members who can now overcome the hurdles of raising a down payment for their mortgage or acquire full financing to buy a house.

The pension sector savings and enrollment will increase and more members can purchase homes and still have a plan for their financial well-being after they retire. 

Over the years, many employees have had to wait until they retire then use their entire pension to build or buy a retirement home.— The writer is the Mortgage Officer, Enwealth Financial Services Ltd

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