Money Management
November 11, 2024
Building a house in Kenya is a dream for many, but it requires more than purchasing construction materials and paying labourers. Beyond the visible costs of bricks and mortar, numerous fees and taxes levied by government agencies significantly contribute to the overall budget.
From before you lay the foundation to when you finally move in, these unavoidable costs need to be considered to avoid budget shortfalls and unnecessary delays.
If you've already purchased the land for your home, you've likely already paid many government fees and taxes. For instance, buying a plot worth Ksh2 million could incur additional taxes and costs amounting to around Ksh203,900.
But the costs don’t end there. Imagine now you’re preparing to construct a three-bedroom bungalow valued at Ksh3 million. What further taxes and fees will you need to account for in this next phase of your home-building journey? Let’s break them down.
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One of the first steps in building your house involves obtaining the necessary approvals from local authorities. This process typically starts with hiring a licensed surveyor and a physical planner. Surveyors provide expert advice on land surveying and tenure systems, which is crucial when planning to construct a house.
These surveys are essential for infrastructure development and ensure that your project aligns with the physical realities of the land. Surveyors generally charge Ksh5,000 per hour for their services.
After completing the survey, you'll need an architectural and structural plan. This begins with hiring an architect to draw up your development plan and ensure it meets all regulatory standards. Depending on the architect’s experience, their fees can range from Ksh5,000 to Ksh20,000 per hour.
Once you have your building plan, you must get it approved by the county government, which issues you a construction permit. The cost of this permit will vary by county. For instance, constructing a house valued at Ksh3,000,000 in Meru County will require a construction permit that costs Ksh30,000.
Total Estimated Costs:
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An Environmental Impact Assessment (EIA) is a critical step in the construction process to ensure your project complies with environmental and public health regulations.
According to the National Environment Management Authority (NEMA), EIA helps establish safeguards, management, and monitoring plans to protect public health and the environment while promoting sustainable development.
In Kenya, NEMA oversees the EIA process. The fees for EIA are based on the total cost of your project. NEMA charges an EIA processing and monitoring fee of 0.1% of the total project cost, with a minimum fee of Ksh10,000. Additionally, there are graded fees for the registration and licensing of EIA experts, along with other related processing fees.
For larger projects, particularly those exceeding Ksh5 million in value, an additional fee is payable to the National Construction Authority (NCA). In this case, you would need to pay 0.5% of the project’s contract value to the NCA before commencing construction.
Estimated Fees:
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When purchasing construction materials in Kenya, it's important to understand that Value Added Tax (VAT) is already factored into the price of items like cement, steel, and timber. As a consumer, you do not directly pay VAT separately; it’s included in the final purchase price set by suppliers.
VAT, currently set at 16%, is an indirect tax applied to the sale of goods and services, meaning it’s collected by businesses on behalf of the government and built into what you pay.
For instance, if you spend Ksh2 million on construction materials, that amount already includes the 16% VAT. Therefore, the tax component of your purchase would be Ksh320,000.
Example Breakdown:
Additionally, you may need to account for import duties if you source materials from outside Kenya. These taxes are applied based on the type of materials being imported and can vary. Import duties are calculated according to the Customs Tariff schedules and could add to the overall cost of your construction materials.
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When building a house, a significant portion of your budget will go toward contractor fees, which cover labour costs, project management, and other services contractors provide during construction. If you allocate Ksh1 million for contractor services, it’s important to understand the taxes associated with these fees.
In Kenya, contractor fees are subject to a withholding tax, which is a form of tax deduction at the source. The withholding tax rate for resident contractors is 3% of the total fee. This means that if your budget for contractors is Ksh1 million, you will need to withhold 3%, which amounts to Ksh30,000, and remit it to the Kenya Revenue Authority (KRA).
Example Calculation:
This tax is a legal obligation and ensures compliance with tax regulations. Factoring in withholding tax helps you anticipate and manage the full scope of your contractor expenses.
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Before you can officially move into your new house, you must obtain an Occupational Permit, often called a Certificate of Occupancy. The county government issues this document and certifies that your home complies with all applicable building codes and regulations. It confirms that the structure is safe and suitable for occupancy, ensuring that everything from electrical systems to structural integrity meets the required standards.
The cost of obtaining a Certificate of Occupancy varies depending on the size of your house and the specific county government regulations. You must apply and be inspected in many counties before the permit is issued. For example, in Nyeri County, the certificate costs Ksh2,500. Some counties may charge for inspection separately.
Larger homes or those with more complex structures may have higher fees, as inspections might be more detailed.
Below is a breakdown of the various taxes and fees you will encounter when constructing a house worth Ksh3,000,000 in Kenya.
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Before you start constructing your house, it's essential to have experts who can guide you in creating a comprehensive budget. These professionals can help you avoid costly mistakes and ensure that your dream home doesn't run into a financial nightmare.
As you plan your construction, be aware that prices for materials, labour, and permits can fluctuate. Conduct thorough research on current costs and factor in potential increases or changes to your building plans.
In this case, establishing a contingency fund can be a wise strategy as it creates the buffer you need. Setting aside extra money can help you cover unexpected expenses and keep your project on track.
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