Effect of lending rates on real estate pricing in Nairobi, Kenya
Abstract
This paper studies the effect of lending rates on real estate pricing with the aim of showing the
causation effect of the lending rates on real estate prizing. It is a descriptive study that used
regression and the main data analysis method. The data was collected for the four classified parts
of the city from the Real Estate Agents in Nairobi.
The key finding is that lending rates have an effect on real estate prices. Other factors held
constant lending rates played a key role in house pricing in the period from 2004 to 2008,
whereby 43.6% of the changes in real estate prices were explained by changes in lending rates
alone. The relationship developed in the absence of other factors is 66% strong: However,
lending rates remain as one of the factors that affect the pricing of houses in Nairobi as other
unidentified seasonal factors also plays a role. Figures in the year 2008 alone shows that these
other unidentified seasonal factors came to play that over shadowed the effect of lending rates
whereby despite the rates remaining constant house prices surged up. Evidently too when the
rates escalated in 2011, they had a minimal effect on pricing which went up slightly.
Therefore the unidentified seasonal factors have a strong effect that neutralizes the effect of
lending rates. Herein these seasonal factors are important whereby investors need to identify
them in order to make informed decisions. 2008 provides a typical example whereby the real
estate prices increased at a high rate before reducing the momentum the following year.
Further studies need to be carried out to establish seasonal factors that heavily affect the real
estate pricing. Similarly a study need be done to highlight the effect of movement of lending
rates on real estate development to show if number of units build over a period changes with the
lending rates.
Citation
Obaigwa Shem Mwaniki (2013). Effect Of Lending Rates On Real Estate Pricing In Nairobi, Kenya. Masters Of Science In FinancePublisher
University of Nairobi