Effects of Macroeconomic Variables on Real Estate Development in Kenya

Abstract

The development of real estate sector in any context is highly affected by several economic factors. For example, the housing bubble is associable with; excessive desire for home ownership in an economy, buying for speculation, low interest rates, and residential real estate viewed as a safe harbor. To this extent, variables that influence the above variables such as inflation, GDP, Money supply, including international remittances are bound to affect the development of real estate. This study sought to establish the effects of macroeconomic factors on real estate sector development in Kenya. Independent variables were balance of payment, government expenditure, external government debt, foreign direct investments, taxation, interest rate, inflation rates, unemployment, capital market development and exchange rates. Development of the real estate sector was the dependent variable which the study sought to explain and it was measured by quarterly Hass Consult Property index. Secondary data collected on a quarterly basis for a period of 10 years (January 2008 to December 2017) was used. The study used a descriptive cross-sectional research design and a multiple linear regression model to analyze relationship between the variables. Statistical package for social sciences version 21 was used for data analysis purposes. The results of the study produced R-square value of 0.840 which means that about 84 percent of the changes in growth of the real estate sector in Kenya can be explained by the ten selected independent variables while 16 percent in the variation was associated with other factors not covered in this research. The study also found that the independent variables had a strong correlation with growth of the real estate sector (R=0.916). ANOVA results show that the F statistic was significant at 5% level with a p=0.000. Therefore the model was fit to explain growth of the real estate sector in Kenya. The results further revealed that individually only balance of payment and unemployment rate are statistically significant determinants of development of real estate sector in Kenya. This study recommended that measures should be put into place to improve and develop the real estate sector in Kenya by reducing both the prevailing unemployment rate levels and current account deficit. This study relied on secondary data and recommends in depth questionnaires and interviews covering all the 80 registered firms so as to compliment this research. Further studies should be conducted to incorporate other variables like money supply, poverty levels, technology, firm specific characteristics, political stability and other macro-economic variables. Showing the effect of each variable on the real estate sector’s development will enable policy makers know what tool to use when controlling development of the sector.