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Skyrocketing land prices to hinder mortgage uptake even after KRA doubled tax relief

By Patrick Alushula | January 25th 2017
House Residential Loan Application

Increasing land prices will remain a key barrier to home ownership despite a drop in interest rates, experts say.

This comes after Kenya Revenue Authority (KRA) announced the doubling of tax relief on mortgage repayment interest of up to Sh25,000 every month from January 1 this year.

The impact is addition of Sh3,750 per month into the mortgage holders’ pockets. For 12 months, that translates to Sh45,000 saving on tax.

KRA giving tax payers a tax relief means that out of the total amount of money supposed to be paid as tax, the taxman subtracts some amount (called relief), leaving a reduced tax burden.

Therefore, the relief on mortgage in addition to the Government’s move to cap the cost of borrowing at four per cent above the Central Bank Rate (currently at 10 per cent), came to the relief of mortgage holders.


Using the current maximum interest rate of 14 per cent for commercial banks and assuming a repayment period of 20 years, a mortgage of about Sh2 million will attract Sh24,870.

Previously, such a mortgage would only have given the borrower a relief of just Sh12,500, leaving them with higher taxable income.

Research Director at Kenya Bankers Association Jared Osoro said the move may not be adequate for as long as prices of land remain high.

In a phone interview with The Standard, Mr Osoro said in the absence of interventions on supply side such as addressing cost of land and taming speculators, not so much impact will be felt. “If you have expensive houses coming into the market, it does not matter how much relief you give to the lower middle class households. The move is positive and necessary, but not sufficient unless you have these supply constraints being addressed,” he said.

At Sh8.3 million, the mortgage size has more than doubled in the last six years from Sh4.1 million in 2010. In 2014, it stood at Sh7.5 million compared with Sh6.9 million in 2013.

According to Samuel Mwaura, Director of Tax at accounting and consultancy firm Grant Thornton Kenya, the move by KRA is aimed at encouraging more people to take up mortgage and stimulate demand for houses.

“The monthly repayment has significantly gone down, enabling the middle-level borrower not to struggle much. Since we are almost assured that the rates will not go up soon, it will give one a chance to do personal planning on finances,” said Mr Mwaura.

However, the skyrocketing prices of property remain a thorn in the flesh in Kenyans’ quest to own homes. Mwaura says that at 14 per cent, many Kenyans still view mortgage as out-of-reach product.

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