The 2025/26 Finance Bill: What It Means for Kenya’s Real Estate Sector

In June 2025, the government introduced the Finance Bill for the 2025/26 financial year under the theme “Stimulating Sustainable Economic Recovery for Improved Livelihoods, Job Creation, and Business and Industrial Prosperity.” While much of the national conversation has focused on tax reforms and fiscal tightening, those in the property and construction space are watching keenly.

This article looks at how the new bill could shape the future of real estate in Kenya — from developers and contractors to investors and aspiring homeowners.

1. Major Public Investment in Housing & Urban Development

The government continues to champion its Affordable Housing Program with a significant budgetary allocation of Ksh 128.3 billion to the Housing, Urban Development, and Public Works sectors. Highlights include:

• Ksh 64.5 billion for constructing Affordable Housing Units
• Ksh 10.5 billion for Social Housing
• Ksh 7.2 billion for upgrading informal settlements
• Ksh 5 billion for supporting social and physical infrastructure
• Ksh 3.5 billion for housing police and prison staff

These investments are aimed at increasing home ownership, reducing urban sprawl, and enhancing dignity through decent housing. If effectively implemented, this funding will unlock construction opportunities for developers and foster job creation in the building and urban planning sectors (National Treasury, 2025).

2. Broader Access to Mortgage Tax Relief

There’s good news for those building their own homes: the mortgage interest relief now covers not just home purchases, but also construction loans. Borrowers can deduct up to KES 300,000 per year on interest paid, reducing their overall taxable income.

This move could encourage more middle-income earners to take the construction route, possibly boosting activity in land sales and residential development in peri-urban areas.

3. Support for the Construction Sector

To reinforce the industry’s role in economic growth, KES 6 billion has been set aside to help regulate and promote the construction sector. This is likely to go toward improving standards, skills development, and compliance a win for both developers and end users.

4. A More Transparent PPP Framework

The bill also strengthens the structure around Public-Private Partnerships (PPPs). With over 30 PPP projects lined up for implementation in the new financial year, private developers and investors could play a bigger role in delivering housing, infrastructure, and urban development.

In addition, mandatory transparency rules have been introduced for privately initiated proposals (PIPs), boosting public confidence and accountability in joint ventures with government.

5. Investor Incentives Through the NIFC

If you’re playing in the big league, say, institutional real estate or REITs, the Finance Bill offers some compelling tax incentives through the Nairobi International Financial Centre (NIFC). Certified companies that commit at least KES 3 billion in new investments will benefit from:

• A 15% corporate tax rate for the first 10 years
• 20% for the following decade
• Startups certified under NIFC also enjoy a tax break: 15% for 3 years, then 20% for 4 more

This is clearly a move to bring in big money and it could lead to more high-rise, mixed-use, or sustainable housing projects across urban centres.

6. Input Costs May Rise Due to VAT Reclassification

Not everything in the bill is rosy for real estate. A number of construction-related materials and services that were previously zero-rated have now been moved to the VAT-exempt category. What’s the difference? Developers can’t claim VAT refunds on exempt supplies.

The result: slightly higher input costs, especially for affordable housing developers. These cost pressures might eventually trickle down to the buyer or tenant unless offset by efficiency gains or policy support.

7. Sustainability Focus and Climate-Resilient Planning

A portion of the housing budget is dedicated to supporting urban resilience, with funding set aside to help build climate-friendly infrastructure, especially for low-income communities. Developers working in eco-sensitive areas or those integrating sustainable features (like green energy, water recycling, etc.) could align their projects with this national agenda.

8. VAT on Solar Equipment: A Step Back?

In a less welcome move, VAT exemptions on solar products have been removed. This could raise the cost of installing solar solutions, a key component for developers pushing off-grid or energy-efficient living.

Still, solar remains a valuable selling point for gated communities and estate developments targeting buyers who care about utility bills and sustainability.

Final Take: A Mixed Bag, But Full of Potential

The Finance Bill 2025/26 opens several doors for real estate players, especially developers and institutions with the muscle to invest big and navigate the formal landscape. The government’s housing and infrastructure spend is promising, mortgage relief makes home ownership more achievable, and tax breaks through NIFC could supercharge the big-ticket segment.

But challenges remain, rising costs due to VAT tweaks and the need for real execution, not just policy.

As always, the winners will be those who stay informed, adapt fast, and align with national priorities.

References:

• National Treasury, Budget Highlights 2025/26
• Grant Thornton Kenya, Finance Bill 2025/26 Analysis
• EY Kenya, Tax Alert, Finance Bill 2025
• RSM Kenya, Budget Brief 2025
• Parliament of Kenya: Finance Bill Report