By Benard Onyango
Benard is the CEO and founder of Marble Engineering, the leading design and build company for residential and commercial construction in Kenya.
Kenya’s real estate sector is facing a major shake-up with the introduction of Ruto’s housing levy Kenya. Initially imposed on salaried employees, the levy now applies to landlords and small businesses. Under the new rules, landlords must pay 1.5% of their rental income, while small businesses with an annual turnover above KSh 1 million will also be taxed. This has raised concerns among real estate investors, homeowners, and developers.
With the government promoting affordable housing projects Kenya, many investors are left wondering whether the policy will encourage homeownership or discourage private investment.
The expansion of the levy’s scope has also affected the cost of housing. Questions like “Is affordable housing project working in Kenya?” and “How much new housing levy in Kenya will cost me?” are common among those looking to invest. The government promises that this move will create thousands of jobs, increase homeownership, and improve the quality of life for low-income earners.
With 5,000 affordable housing units set to be released by April 2025, many Kenyans are wondering whether these projects will truly benefit them. Others are asking, “Where are affordable houses in Kenya?”, as availability remains a concern.
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1. Understanding Ruto’s Housing Levy Kenya
What Is Ruto’s Housing Levy Kenya?
The new housing levy is a mandatory contribution imposed by the government to fund affordable housing projects Kenya. Originally, the levy was limited to salaried employees, but it now includes landlords and small business owners. This means that property owners must pay 1.5% of their total rental income, and businesses must contribute a percentage of their gross revenue, regardless of profitability.
For many, the key question is, “How much new housing levy in Kenya will cost?” The answer depends on individual earnings. Unlike traditional property taxes, this levy is applied before expenses are deducted, making it a significant financial burden on investors and business owners.
Why the Government Expanded the Housing Levy
The government argues that the levy is necessary to fund affordable housing projects Kenya. The goal is to construct 200,000 affordable homes each year and 1 million homes in the next five years. According to officials, this initiative aims to address the housing shortage in urban areas while creating employment opportunities in the construction sector.
Despite the government’s justification, many Kenyans question, “Is affordable housing project working in Kenya?” While some houses have been completed, the rollout has been slow, and concerns about corruption and mismanagement remain. Critics argue that forcing landlords and businesses to fund these projects could hinder economic growth rather than improve homeownership rates.
How the Levy Affects Property Owners
For landlords, the new housing levy means reduced profit margins. Many may be forced to increase rental prices to compensate for the tax. This raises another critical question: “Where are affordable houses in Kenya?” If private rentals become too expensive, will government housing be a better alternative?
Small business owners are also feeling the pressure. Since the tax is applied to gross revenue, businesses must pay even if they are making losses. This has sparked a debate about whether the government should tax profits instead of revenue.
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2. Financial Impact on Real Estate Investors
How Much New Housing Levy Kenya Will Cost You
The 1.5% levy on rental income is expected to reduce landlords’ earnings, making it less profitable to own rental properties. Since the tax applies to gross income, investors still need to cover maintenance costs, loan repayments, and property taxes on top of this additional levy.
For example, if a landlord earns KSh 1000,000 in rental income, they must pay KSh 15,000 as housing levy tax. This does not account for expenses such as repairs, vacancies, or loan repayments, making it a substantial financial burden.
Will the Levy Increase Housing Costs?
Many property owners are now raising rent to cover the levy. This could lead to higher living costs for tenants, pushing more people to apply for affordable housing projects Kenya. However, given the slow rollout of these projects, it is unclear whether the government can meet the growing demand.
Is Affordable Housing Project Working in Kenya?
Although the government has completed 140,000 units, many investors and potential homeowners remain skeptical. Issues such as poor infrastructure, long application processes, and lack of transparency have raised doubts about the effectiveness of the program.
What This Means for Investors
Some investors are considering exiting the market to avoid losses. Others are asking, “Where are affordable houses in Kenya?”, hoping that government-subsidized properties will be a better alternative.
How to Protect Your Investments
- Increase rent cautiously—raising prices too quickly may push tenants away.
- Reassess property investments—selling may be a better option.
- Explore alternative construction methods to reduce costs.
- Build in high occupancy areas—including popular suburbs in Nairobi, Kisumu, Mombasa and Nakuru to avoid the risk of low occupancy
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3. The Impact of Ruto’s Housing Levy on the Construction Industry
How Construction Costs Will Change
The cost of building a single-family home in Kenya has been rising due to inflation, expensive materials, and labor shortages. With the new housing levy, costs are expected to increase further, making homeownership even more challenging.
Contractors and developers must now factor in additional taxes when pricing construction projects. This raises concerns for those looking to invest in real estate or build their own homes. Many now wonder, “Should I build my own home even if we have affordable housing in Kenya?”
Effects on Small Contractors and Developers
Many construction supervisor Kenya experts say that small businesses in the construction sector will be hardest hit. With the government taxing gross sales instead of net profits, contractors may struggle to stay in business. Some small firms might even shut down, leading to job losses in the construction industry.
How Contractors and Homeowners Can Manage Costs
- Work with a reputable design and build company in Kenya to manage costs effectively.
- Hire professionals to prevent losses caused by unqualified laborers.
- Negotiate with suppliers for better material prices.
- Consider phased construction to spread costs over time.
Conclusion
The new housing levy Kenya has significant implications for landlords, small businesses, and investors. While the government argues that the tax will fund affordable housing projects Kenya, many remain concerned about increasing costs and reduced rental profits.
Navigating these changes requires strategic planning. Working with a trusted design and build company in Kenya can help investors optimize construction costs, avoid financial losses, and maximize profitability. Contact Marble Engineering today to ensure your investments remain profitable despite the new housing levy!