Kenya’s Affordable Housing Programme introduced a reduced corporate tax rate of 15 percent for real estate developers who complete and hand over at least 100 residential units annually. While this incentive aims to boost investor returns and scale up housing supply, Mi Vida Homes CFO Solomon Nzomo argues that policy unpredictability and bureaucratic hurdles have limited its effectiveness.
“We have come a long way in terms of creating an enabling environment for affordable housing. We started with the threshold at 400 units for preferential corporate income tax before it was brought down to 100 units after sector stakeholders’ feedback was taken in and that signals progress from a trajectory standpoint,” Mi Vida Homes CFO Solomon Nzomo says.
“Be that as it may," he adds, "the main issue is the unpredictability and uncertainty of the fiscal environment. Investors struggle to take a long-term view, and this reduces the level of capital committed to housing. You end up doing the bare minimum and waiting to see how things evolve.”
According to Solomon, the 100-unit threshold creates an unintended barrier, particularly for developers in the mid and high-income segments.
“If you’re developing high-end units, meeting a 100-unit threshold each year can be a real challenge. A slightly lower benchmark, perhaps in the range of 50 units, would broaden access to the incentive. That way, even developers targeting the mid-to-high-income market can benefit, and it supports a more inclusive housing agenda across the board,” he explains.
Burdensome reapplication and narrow tax windows
Developers must reapply each year to qualify for the tax incentive, even for multi-year or phased projects. Solomon believes this discourages long-term planning.
“You need to demonstrate that you’re handing over 100 units every year, and the process isn’t automatic across project phases. Streamlining this would give developers more tax certainty,” he says.
Solomon notes that the limit on tax loss carry-forward is especially burdensome for developers operating under holding structures. Because large projects take time to break even, the five-year window often closes before profits fully materialise.
“A typical multi phased project – regardless of how you phase it – will probably take around five years, as the phases will tend to overlap. It becomes a challenge where you have a holding company or group where the typical operating costs are recognised. And the profits that are being generated from the various projects are not sufficient to offset the tax losses within the allowed period, yet the operating costs are necessary initial investments as you scale and optimise the business for the long term,” he says.
VAT pressures on residential housing
The return of VAT on construction inputs without corresponding VAT on residential property sales has increased the financial burden on developers.
“While we appreciate that the national fiscal policy is anchored on the need to clean for the Ksh 400 billion in tax expenditures, the bulk of which are brought about by VAT zero-rated products, we believe that a phased-out approach that ring-fences priority initiatives like affordable housing would go a long way in strengthening the economy. For residential developers, VAT is a cost rather than a pass-through. You can’t charge VAT on the final unit sale, so the input VAT becomes an added cost, which affects your pricing and overall delivery capacity,” Solomon explains.
Even for developers operating in the affordable housing segment, accessing VAT exemptions remains complex. Lengthy procedures and unclear eligibility criteria strain cash flows and discourage uptake.
The case for stability
Solomon emphasises that tax changes introduced midway through projects can undermine financial planning and erode buyer confidence, especially when pre-sales are the main source of financing.
“If you pre-sell units based on the assumption that VAT isn’t applicable, and that changes mid-project, it hits your margins. That impacts investor returns and affects your ability to launch future phases. In turn, that slows housing supply, defeating the broader goals of the government’s housing agenda,” he says.
While recent tax reforms introduced in 2018 such as the 15percent corporate tax rate and VAT exemptions are well-intentioned, Solomon believes their real impact depends on stability and ease of implementation.
“The two big positives are the reduced corporate tax rate and VAT exemptions on building materials. If applied consistently and with simplified procedures, they could be game changers. But predictability is key,” he says.
