The Kenyan Government established the Affordable Housing Initiative, as one of its Big Four pillars to promote long term economic development, focused on delivering 0.5 million housing units for the lower and middle income population segments by 2022.
In order to aid in housing finance for first-time homebuyers, the Home Ownership Savings Plan (HOSP) was established in 1995, as a savings plan to receiving and holding funds in trust for homebuyers.
The government also put in place measures to fulfil its pledge to promote low-cost housing, some of which include:
- Increase of tax rebates issued to depositors to KSh 96,000 from KSh 48,000 annually (KSh 8,000 per month from KSh 4,000 per month) as per the initial Home Ownership Savings Plan (HOSP) regulations in 1995.
- Formation of the Kenya Mortgage Refinancing Company (KMRC) whose main function is enhancing mortgage affordability by enabling long-term loans at attractive market rates through the provision of affordable long-term funding.
- Establishment of the National Housing Development Fund (NHDF), with the aim of allowing mortgage and cash buyers to save towards the purchase of an affordable home through the Home Ownership Savings Plan (HOSP).
- Tax relief for mortgage borrowers up to a maximum of KSh 300,000 per annum.
On Thursday, November 7, 2019, the President of the Republic of Kenya assented the Finance Act of 2019, introducing into law several amendments touching on the affordable housing initiative.
Among them, a section of the Income Tax Act was amended, to include Fund Managers or Investment Banks registered under the Capital Markets Act as approved institutions to hold deposits of a Home Ownership and Savings Plan (HOSP).
This is in addition to the adoption of the Capital Markets Authority (CMA) investment guidelines to guide the investment of deposits held in a registered HOSP.
Previously, HOSP guidelines only recognised prudential guidelines provided by the Central Bank of Kenya (CBK).
The Home Ownership Savings Plan (HOSP) once effected as from January 2020, will provide an efficient way of mobilising long-term liabilities for financial institutions, allowing providers to offer long-term fixed-rate loans, thus boosting the mortgage market.
We also expect it to:
- Stimulate a savings culture especially among the young population and low-income households.
- Alleviate the housing problem by providing housing finance for home-buyers.
- Minimise credit risk, as depositors can demonstrate their ability.
- Stimulate the mortgage market by providing a platform where a potential home buyer can accumulate the required deposit over time.
However, to ensure that the Home Ownership Savings Plan is effective, there is a need for proper guidelines with respect to the newly approved institutions offering HOSP.
The CMA Act should provide the standard terms and conditions addressing the following:
- The general framework for business principles and general contract terms with respect to institutions that offer HOSPs.
- Rules on permissible business activities by the Fund Managers.
- Approved methods of investing the savings whether in the stock market or government securities.
- Guidelines on granting of loans after the 10 years have elapsed and the appropriate loan-to-value ratio.
In conclusion, we expect the Home Ownership Saving Plans to enhance the raising of funds for the Big Four agenda on the provision of affordable housing.
The long term, as well as closed nature of HOSP schemes, will help attract long-term finance helping institutions to avoid the usual mismatch between the maturity of deposits and housing loans, thus making it a sustainable funding instrument.
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