Effect of Selected Macroeconomic Factors on Growth of the Real Estate Sector in Kenya

Abstract

Macro-economic variables in Kenya have been fluctuating overtime due to government policies and the law of demand and supply. Some of the macroeconomic issues that the nation has faced include rising prices, fluctuating interest rates, rising external debt, and exchange rate volatility. Along with a growing current account deficit, the value of the Kenyan shilling has recently declined significantly against the majority of the traded international currencies. These adverse macroeconomic trends could cause serious issues with the real estate sector's expansion. The objective of this research was to determine the effect of selected macroeconomic variables on Kenya’s growth of the real estate sector. The study was based on modern portfolio theory, international fisher effect theory and arbitrage pricing theory. The independent variables were exchange rate, interest rate, inflation and unemployment rate. The dependent variable that the research attempted to explain was the growth of the real estate sector in Kenya. The data was collected on a quarterly basis over a period of ten years (from January 2012 to December 2021). A descriptive research approach was employed in the research, with a multivariate regression model used to examine the connection between the study variables. The study's findings yielded an R-square value of 0.526, indicating that the chosen independent variables could explain 52.6 percent of the variance in Kenya’s growth of the real estate sector, while the other 47.4 percent was due to other factors not investigated in this study. The F statistic was significant at a 5% level with a p=0.000. This suggests that the model was adequate for explaining growth of the real estate sector in Kenya. Further, the findings demonstrated that exchange rate had a negative and significant influence on Kenya’s growth of the real estate sector. Interest rate and inflation had no significant influence on Kenya’s growth of the real estate sector. Unemployment rate had a significant negative influence on growth of the real estate sector in Kenya. The study recommends that there is need to manage the current levels of unemployment since they have a major impact on real estate sector growth. Policy makers should also stabilize the existing levels of exchange rates as a depreciation of the currency adversely affects real estate sector growth. The study further recommends the need for future researchers to conduct a study for a longer period of time such as the last 20 years to capture the effects of economic cycles.