Gov’t targets Sh129 billion in debt for housing through NSE

By Newsflash Writer

The government is planning to raise Sh129 billion via the Nairobi Securities Exchange (NSE) using Sukuk bonds and Real Estate Investment Trusts (REITs) to accelerate its affordable housing initiative.

This move comes even as a large portion of the money collected through the Affordable Housing Levy remains unutilized.

The government has parked some of these funds in Treasury bills to earn interest. According to Housing and Urban Development Principal Secretary Charles Hinga, the Sh120 billion collected so far from the levy falls short of the Sh300 billion in housing contracts already signed with developers.

The proposed financing, which will contribute to public debt, aims to attract private investors who will earn returns through rental income from Income REITs (I-REITs) or capital appreciation from Development REITs (D-REITs). “We need around Sh400 billion annually to deliver 200,000 housing units every year,” Mr Hinga said on Monday. “Yet the housing levy brings in a maximum of Sh72 billion a year. The gap is significant.”

Mr Hinga revealed that the government is planning to approach the capital markets next year to raise $1 billion (Sh129 billion) through Sukuk bonds and REITs listed on the NSE.

This plan comes despite a large part of the housing levy funds still being idle. The Housing Department recently informed Parliament that it had earned Sh4.2 billion in interest by investing part of the levy in 90-day Treasury bills, with another Sh30 billion yet to be deployed. Defending the strategy, Hinga said it made financial sense to invest idle funds while waiting for project implementation.

Current contracts

“We currently have contracts worth Sh300 billion, but only Sh120 billion collected. We need to keep collecting to meet our obligations,” he said. “It is simply responsible to invest idle funds and use the returns to close the financing gap.”

The affordable housing plan is one of the few national initiatives supported by a specific tax and backed by additional debt. Of the planned Sh129 billion, Sh21 billion will come from Sukuk bonds and the rest from REITs. Sukuk are asset-based securities that comply with Islamic finance principles, particularly the ban on traditional interest.

Previously, Linzi Finco Trust issued a Sh3 billion Sukuk bond to fund affordable housing. The government now plans to issue its own Sukuk to finance 10,000 units for the Kenya Defence Forces in a public-private partnership. These will be listed on the NSE.

REITs pool funds to finance construction projects (D-REITs) or buy completed properties for rental income (I-REITs). The NSE has hosted two successful REIT listings: ILAM Fahari I-REIT (later delisted) and Laptrust Imara I-REIT. Acorn’s D-REIT and I-REIT are also operational but trade over the counter rather than on the NSE.

Alternative financing

Alongside Sukuk and REITs, the government is exploring alternative financing, including mobilizing diaspora investment. Since the housing levy was introduced in June 2023 (with a short suspension in early 2024), the programme has collected Sh120 billion.

The levy, set at 1.5 percent of gross monthly earnings and matched by employers, or by self-declared income for the self-employed, remains a critical funding source. However, Hinga noted that it is still insufficient, and external financing is necessary.

To encourage diaspora participation, the government plans to establish a dedicated investment facility and reserve a quota of units for Kenyans abroad. A 2021 Central Bank of Kenya survey found that nearly 50 percent of remittances are directed to real estate, aligning with the objectives of the housing programme.