Real estate sector sounds the alarm over proposed tax changes in Finance Bill 2025

Kenya’s real estate sector is sounding the alarm over proposed tax changes in the Finance Bill 2025 and the National Rating Act 2024, warning that they could derail affordable housing efforts, scare away investors, and hurt millions of livelihoods.

Speaking at a press briefing in Nairobi, the Association of Real Estate Stakeholders Kenya (RESA) called on Parliament to urgently amend or suspend what it termed as “punitive” tax clauses. 

These include the reintroduction of VAT on construction materials, a new annual property tax on urban residential homes, and the scrapping of key investment incentives.

“The combined effect of these measures is a policy shock to the property market—with unintended consequences that will hurt ordinary Kenyans, small and medium developers, and the national economy at large,” RESA leadership warned.

Under the Finance Bill 2025, items that were previously zero-rated or exempt—including essential construction materials for affordable housing—would now attract a 16% VAT. 

RESA argues this will sharply increase housing costs and further deepen Kenya’s annual housing shortfall of 200,000 units.

Also proposed is a 0.3% annual national property tax on urban homes, on top of existing county land rates. RESA warned that this double taxation could lead to rent hikes of up to 25%, pricing out tenants and middle-income homeowners.

Additional changes include the removal of the 15% preferential corporate tax rate for developers constructing 400 or more units annually, along with the repeal of the 100% investment deduction for projects in Special Economic Zones and rural areas. The bill also seeks to limit the period for carrying forward tax losses to five years, down from the current indefinite timeline—a move that could severely affect long-term infrastructure and housing developments.

Furthermore, the bill shortens the timeframe for VAT refunds from three years to two, eliminates the ability to offset overpaid taxes against input VAT, and extends refund audits to 180 days. These changes are expected to strain the cash flow of developers, particularly small and mid-sized players, who may struggle to meet ongoing costs and project timelines.

RESA also raised concerns over provisions in the National Rating Act 2024, which expand county government powers by broadening the definition of rateable property, requiring five-year property revaluations, and enabling enforcement actions such as property auctions for unpaid rates. Despite the inclusion of a dispute resolution mechanism, the Act still increases compliance burdens and heightens investor uncertainty.

With the real estate sector contributing over 12% to national GDP, directly employing more than 300,000 people, and supporting over two million livelihoods across related industries such as construction, finance, legal services, and transport, RESA warned that these legislative changes threaten not just the property market, but the broader economy. 

RESA called on Parliament and the National Treasury to engage in meaningful dialogue with stakeholders and to reconsider the proposed tax measures. It urged the government to protect incentives that promote affordable housing and local industry, harmonize overlapping national and county tax regimes, and ensure tax refund systems support rather than stifle business viability.

“We call for inclusive dialogue that brings all stakeholders to the table. Policy should not just raise revenue—it must also enable sustainable growth and protect livelihoods,” the association emphasized.

RESA reaffirmed its commitment to working with government and private sector partners to uphold transparency, restore investor confidence, and promote ethical and sustainable development in Kenya’s real estate sector.