The Effect Of Macroeconomic Factors On Residential Real Estate Investment In Kenya

Abstract

The real’s estate industry is characterized by huge investments and it’s vital in boosting economic growth. In both developing and developed nations, real estate investments have been increasing dramatically, over the last decade in both nominal and real terms. However, the industry is faced with the liquidity problem especially when an investor needs money to invest in other sectors of the economy and it’s a non-transparent market as well. The study aimed at assessing the effect of macroeconomic factors on residential real estate investment in Nairobi County. The study explored the Q theory of housing investment, the standard Gordon growth model, the modern portfolio theory and the arbitrage pricing theory. To achieve this objective, the study used a descriptive research design and used quarterly secondary data, which was covering 10 years from January 2007 to December 2016. Data analysis was through descriptive and inferential statistics. Descriptive statistics comprised of the measures of central tendency among them the arithmetic mean, variance and standard deviation. Correlation and pooled regression analysis made up the inferential statistics and used in establishing existing correlation linking the research variables. The results established direct correlation linking the consumer price index, money supply and the residential real estate index. The results show that there is a weak positive correlation between CPI, GDP and exchanges rates and the residential real estate index but a strong correlation between the money supply, exchange rate and residential real estate index. The results further indicate direct but insignificant association linking interest rates, exchange rates and the residential real estate index. The study concluded that residential real estate investment in Kenya is significantly influenced by inflation, economic growth and the amount of currency supplied. The study recommends that the government and other policy institutions should ensure that inflation levels, economic growth rates and money supply should be properly managed so that they do not interfere with investments in the real estate sector since housing is important in any economy.