Which is the best SACCO to join if you want to save for a home?
This question came from one of my Twitter followers. The reason why he asked about a SACCO and not an investment product is because he wants to access credit against his savings (which would then go towards the building).
First of all, the government has some tax incentives for individuals who want to build their first homes. The first incentive is on the savings you make. The tax man will allow you to deduct up to KES 4,000 of your savings from your taxable income, so long as the contribution is to:
- A bank or financial institution registered under the Banking Act
- Insurance Company registered under the Insurance Act
- Building society registered under the Building Societies Act
The above benefit is valid for a period of 10 years, meaning you can keep saving for up to 10 years. In addition, interest earned on the savings will be tax-free, as long as it is not more than KES 300,000 per annum. KES 48,000 per year does not amount to much, but if you are looking to maximize your tax advantage, this can be a starting point to saving for a home. Look out for the return rates on these products though, some are so low, that the tax break may not be worth it.
If you want to access a loan for construction, a regular SACCO is one way to go about it, but most SACCOs limit the borrowing to 3 times your savings and for a maximum of 60 months (5 years), and they require guarantors for you to borrow. A commercial bank may also be willing to lend you money to build a home, but you have to qualify for the loan by demonstrating strong cashflows. With the Interest Cap Law coming into place, many banks have become very shy about personal loans.
A third option is to join a housing fund.
KUSCCO, the umbrella body of all SACCOs has a unique real estate financing product; the KUSCCO Housing Fund. It allows members of SACCOs to borrow against their shares (on referral by their SACCOs), and also allows individuals to open accounts with KUSCCO and build savings against which they can borrow. Their basic terms are as follows
- Applicants must have continuously saved for at least 6 months with the KUSCCO Housing Fund;
- The fund will advance loans up to 5 times the amount of applicants’ savings at the time of application;
- The fund will advance up to Ksh 7 million and a minimum of Ksh 450,000;
- Loans are repayable for up to a period of 15 years;
- The loan is secured against the title deed or property that is being constructed.
They offer financing for both residential and commercial developments, and unlike regular SACCOs, you do not need guarantors to access capital.