Effect of mortgage financing on performance of the residential real estate industry in Kenya
Abstract
In housing investment, the mortgage loans, and real estate financing issue is of great
importance as it plays a vital role in ensuring a transaction is possible and profitable.
African economies are waking up to the fact that mortgages are becoming an attainable
reality for transformational potential home ownership. Home ownership has become a
significant measure of economic health in USA and Australia with almost 63% and
45% of homeowners acquiring their homes through “mortgages respectively. This is
adequate attestation of the significance mortgage financing plays in developing the real
estate sector to be a productive contributor to the national income. The objective of this
research was to determine the effect of mortgage financing on the performance of the
residential real estate industry in Kenya. It also aimed at reviewing the increasing body
of theoretical and empirical studies that have endeavoured to examine the range of
magnitude and relations between financing and real estate performance. The target
population was all the 42 licensed commercial banks and the sole licensed mortgage
housing company. Secondary sources of data were employed. Longitudinal data was
utilized, data was collected over a varying time periods the macro-economic
phenomena of mortgage financing and performance of the residential real estate
industry. The research employed inferential statistics, which included correlation
analysis and multiple linear regression analysis so as to establish the effect of mortgage
financing on performance of the residential real estate industry. Mortgage financing
was disaggregated into the various drivers of mortgage financing which entailed;
number of mortgage loan accounts, outstanding mortgage loans amounts, mortgage
interest rates, and mortgage risks. The study findings were that only the non-performing
mortgages ratio has a significant association with the performance of residential real
estate. They have a significant negative association. Additional findings were that
mortgage financing does not significantly impact on performance of the residential real
estate sector and thus it cannot be utilized to significantly predict performance of the
residential real estate sector. Final findings were that no components of mortgage
financing had” a significant effect on performance of the residential real estate sector.
Policy recommendations were made to the National Treasury and the Ministry of
Housing and Urban Development to formulate other strategies and policies to enhance
the government’s affordable housing component of the Big 4 agenda with minimal
consideration of mortgage financing. Further recommendations were made to the
treasury to regulate the mortgage interest rates so as to enhance the residential real
estate performance. Recommendations were made to the real estate practitioners not to
concentrate on mortgage financing as the sole financing solution to customers.
Recommendations were also made to the commercial bank and mortgage providers not
to rely on solely on mortgage financing as the main product offering because other
sources of finance are being sought to develop the industry and optimal earnings are
not likely to be earned from the product offering. Final recommendations were made to
the residential real estate developers to scale up their operations when the mortgage
interest rates are low because they are more likely to make more sales.
Publisher
UoN
Subject
Effect of mortgage financing on performance of the residential real estate industry in KenyaRights
Attribution-NonCommercial-NoDerivs 3.0 United StatesUsage Rights
http://creativecommons.org/licenses/by-nc-nd/3.0/us/Collections
- School of Business [1411]
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