The Effect of Interest Rates on Residential Real Estate Pricing in Kenya
Abstract
Housing remains to be a critical and essential sector for nearly all economies around the world as it has connections with several other sectors. Growth in the housing sector can directly lead to employment creation, growth of GDP and a change in the consumption patterns of the economy. Despite the real estate sector being one of the major sectors in Kenya’s economy, it has largely been affected by erratic interest rates. The researcher sought to show case this outcome by demonstrating how interest rates affected the residential real estate prices in the period of study. This study employed a descriptive survey to ascertain and describe the features of the variables of interest in a situation. The study population comprised of all the residential real estates in Kenya. This study employed secondary data, where data on residential real estate pricing was extracted from the Hass Property Index, while data on interest rates, money supply and GDP growth was extracted from the CBK. The study employed quarterly data for a period of 10 years from 2007 to 2016. A simple regression model was used to analyze the data. The findings established that the relationship between interest rates and the residential property index is negative and insignificant while the relationship between economic growth and the residential property index is negative and significant. The findings indicate that the correlation between the residential property index and money supply is positive and significant while the relationship between inflation and the residential property index is positive and insignificant. The study concluded that the levels of interest rates have no significant effect on residential real estate prices. The study also concluded that residential real estate prices are significantly affected by inflation, economic growth and money supply. The study recommended that the government through the central bank of Kenya should institute policies to mitigate the effects of inflation, economic growth and money supply on residential real estate prices in Kenya.
Publisher
University of Nairobi
Rights
Attribution-NonCommercial-NoDerivs 3.0 United StatesUsage Rights
http://creativecommons.org/licenses/by-nc-nd/3.0/us/Collections
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