The government plans to raise Sh129 billion through the Nairobi Securities Exchange (NSE) using Sukuk bonds and real estate investment trusts (REITs) to expand the affordable housing programme.
This is despite a substantial part of the taxes collected from the Affordable Housing Levy lying unabsorbed, with the government parking the funds in Treasury bills to earn interest.
Housing and Urban Development Principal Secretary Charles Hinga says the Sh120 billion collected so far from the Affordable Housing Levy is inadequate when compared to the Sh300 billion worth of contracts signed by developers.
The new plans will add to the public debt while also bringing in financial investors who will get a return from rental income in the case of Income Reits (I-Reits) and capital gains in the case of Development Reits (D-Reits).
“We need about Sh400 billion a year to meet our target of 200,000 units every year. The Affordable Housing Levy brings in about Sh72 billion annually at most. So we have quite a huge gap,” Mr Hinga said in an interview on Monday.
“We’re looking at going to the market next year and raising about $1 billion (Sh129 billion) through a Sukuk bond and Reits listed on the Nairobi Securities Exchange.”
The push for new funding comes even as a large portion of the existing housing levy collections remains unused.
The State Department for Housing and Urban Development recently disclosed to Parliament that it earned Sh4.2 billion by investing part of the housing levy funds in 90-day Treasury bills, while another Sh30 billion remained idle.
PS Hinga defended the move, saying it was a matter of financial prudence and that all the money collected cannot be absorbed at once as the projects are implemented in phases.
“Right now, we have Sh300 billion worth of contracts signed, but we’ve only collected Sh120 billion. So we need to continue collecting more to meet our existing contractual obligations,” he said.
“It’s just prudent that if we have idle funds, we invest them and use the interest earned to supplement the financing gap.”
The affordable houses mark one of the few instances where the government has introduced a tax for a specific purpose and augmented it with additional borrowing.
The government plans to raise Sh21 billion from the Sukuk bond and the balance from the two REITs.
Sukuk bonds refer to ownership of assets or investment activity that generates the returns paid to investors. This type of security adheres to the Islamic principles including prohibition of conventional interest.
The first Sukuk bond of Sh3 billion was issued by Linzi Finco Trust, a private company, and channelled towards the construction of affordable houses.
The government is now targeting to issue its own Sukuk bonds to raise Sh21 billion that go towards constructing 10,000 units for Kenya Defence Forces in partnership with a private developer.
The securities will be listed on the NSE.
Reits, on the other hand, are collective investment schemes that raise capital for the development and sale of properties for profit (D-REITs) or purchase of completed housing units for rental income (I-REITs).
To date, the NSE has only seen two successful Reit listings: the ILAM Fahari I-REIT, which has since been delisted from the main bourse, and the Laptrust Imara I-Reit.
Two additional funds –Acorn’s I-Reit and D-Reits— have not been listed but trade over the counter, meaning transactions occur privately rather than on the NSE’s automated platform.
Besides the Sukuk bonds and real estate funds, authorities are also exploring other funding sources, including tapping into diaspora investment, according to top officials at the housing ministry.
Since the introduction of the housing levy in June 2023—interrupted briefly in February and March 2024 due to legal hurdles—the fund has so far collected Sh120 billion, according to the State Department for Housing and Urban Development. But this, officials say, is not enough to meet the projected spending needs.
The levy is charged at 1.5 percent of gross monthly pay and matched by employers or an equivalent percentage of declared income by self-employed individuals and businesses.
Mr Hinga said that while the compulsory monthly levy has helped fund the programme, it remains far from adequate, and seeking additional funding is necessary and inevitable.
In addition to capital market instruments, the government is courting the Kenyan diaspora to invest in the housing programme. Plans include creating a special facility and reserving a quota of units for Kenyans living abroad.
According to the Central Bank of Kenya’s 2021 Diaspora Remittances Survey, nearly half of all remittances are channelled into real estate or mortgage payments, highlighting a strong alignment with the affordable housing initiative.
Mr Hinga, who met with diaspora representatives on Monday, pitched the housing projects as a viable investment opportunity that could both accelerate the programme and offer returns to overseas Kenyans.
This forms part of a broader government effort to tap into the rising flow of diaspora remittances, which reached $4.94 billion (Sh640 billion) in 2024 —an 18 percent jump from $4.18 billion (Sh542 billion) the previous year.
