The Effect of Interest Rates on the Growth of Real Estate Markets in Kenya
Abstract
The main aim of the study was to establish the effect of interest rates on the growth of
real estate in Kenya. Theories the study was anchored on include classical, liquidity
Preference and loanable funds theories. The study was conducted using correlation
study design to show the nature of relationship between changes in interest rates and
growth of real estates in Kenya. The study used secondary data that included
mortgage interest rates, inflation, GDP growth and real estate growth as captured by
montage value of the commercial banks that offer mortgages. Data was collected
quarterly for a period of 11 years from the year 2007 to the year 2017. The secondary
data was obtained from Kenya commercial banks that offer mortgages and Kenya
National Bureau of Statistics. The study also conducted trend analysis which showed
that there have been unsteady fluctuations in GDP growth in Kenya, real estate
growth, inflation and interest rate volatility in the study period.
The inferential findings from the correlation and regression analysis showed that
inflation has a negative and significant effect on real estate growth in Kenya which
implies that an increase in inflation rate leads to a significant decrease in real estate
growth in Kenya. The findings also indicated that mortgage interest rate volatility has
a negative and significant effect on real estate growth in Kenya which shows that an
increase in mortgage interest rate volatility leads to a significant decrease in real
estate growth and that GDP growth has a positive but not significant effect on real
estate growth in Kenya. The study also concludes that the stability of the interest on
mortgages is important if the real estate in Kenya was to grow. High volatility affects
the growth of real estate negatively and significantly. To the real estate investors, the
study recommends that there is a need to be cautious of the inflation rate and the
mortgage interest rates fluctuations when making investment decisions. Similarly, to
the real estate developers, there need to be a caution when making real estate
investment decision since an increase in GDP does not necessarily mean an increase
in demand of housing.
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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