Interest rate risk management practices and performance of real estate construction projects in Busia County,Kenya

Abstract

Although Real estate Housing Industry Projects continue to gain popularity and awareness in Kenya and abroad, many Real Estate Housing Companies do not have effective financial risk management practice systems established. There are problems of lost time and increased costs that cannot be regained in Busia County occasioned by construction issues which are mostly experienced as a result of land disputes that prolong the completion time of most real estate constructionprojects in the County. Not unless suchproblems are addressed, the County will continue lagging behind in terms of performance of real estate constructionprojects. As such, there will be always a problem of prevalence and incessant abandonment of real estate construction projects creating serious financial risks that if effectively addressed would influence Real Estate Construction Projects Performance hence creating win –win situation for both the contractor and its customer. In this study, data was analyzed using descriptive and inferential statistics. Inferential statistics involved testing of research hypotheses using spearman correlation and regression analysis.The compositemean and composite deviation for the Interest rate risk management were 3.99 and 0.948 respectively; implying that using the Likert scale; the respondents agreed that Interest rate risk Influenced Performance of real estate constructionprojects in Busia County. The overall correlation coefficient for Interest rate risk management for and Performance of real estate constructionprojects in Busia County was found to be 0.649 with a p-value of 0.000< α=0.05 implying that from the views of the participants in the study, the results indicated that there was a significant relationship between Interest rate risk management and Performance of real estate constructionprojects in Busia County, leading to rejection of the null hypothesisby concluding that there is a significant relationshipbetween Interest rate risk management and Performance of real estate constructionprojects in Busia County. In conclusion, the simple linear regression coefficients result revealed that there was sufficient evidence that Interest rate riskmanagement waslinearly related to Performance of real estate constructionprojects in Busia County. The study recommends that,Since the banking sectors enjoy preferential treatment for interest income from banking sector fixed deposits, real estate constructionprojects, entrepreneurs should therefore seek for their project funding through bank fixed deposits since a fixed deposit in the bank incurs a final withholding tax of 15% compared to other instruments such commercial paper issued by a developer, which will incur a total tax of 30%. This difference in tax treatment then drive individuals to purchase bank fixed deposit papers compared to commercial papers or privately issued notes which will incur higher interest rates therefore making bankfixed deposits affordable for housing development