The Effect of Mortgage Finance on Growth of Real Estate Firms in Nairobi

Abstract

The Real Estate industry has increasingly attracted the attention of investors in the recent past. With such increase, it has been expected that the industry will significantly grow and thus fulfill its role in provision of substantive returns as well as the basic need of housing in Kenya. This has not been the case and thus this study sought to establish the effect of macro-economic variables on growth of real estate firms in Kenya given they are key in the growth of the industry. The study followed a descriptive research design. The study used secondary data on annual real estate investments growth as computed from the Hass Consult, KNBS and Central Bank of Kenya. The data sets covered the period between 2011 and 2016. The study established a strong positive relationship between the independent variables; Exchange Rate fluctuations, Growth in Diaspora Remittances, Growth in Money Supply, Inflations, and GDP Growth since R-Square was 93.17% respectively. Correlation analysis was undertaken to determine the degree of association between the study variables. The findings indicate a positive correlation between growth in Real estate investments and growth in mortgage financing as indicated by the positive correlation value of 0.04; positive correlation between growth in Real estate investments and growth in inflation rate as indicated by the positive correlation value of 0.39; positive correlation between growth in real estate investments and growth in money supply (M3) as indicated by the positive correlation value of 0.17; a weak negative correlation between growth in real estate investments and growth in GDP growth as indicated by the weak negative correlation value of -0.22; a positive correlation between growth in real estate investments and growth in diaspora remittances as indicated by the positive correlation value of 0.01; a positive correlation between growth in Real Estate Investments and growth in exchange rate fluctuations as indicated by the positive correlation value of 0.79. This study does conclude that the independent variables and growth of real estate bear a strong positive relationship. This study concludes that growth in; exchange rate, diaspora remittances, money in circulation, inflation rate, and real GDP growth do individually influence the growth of real estate in the country.