An Empirical Study of the Determinants of Financial Performance in Real Estate Development by Government Enterprises: a Case Study of National Housing Corporation

Abstract

The study has tried to explain the determinants of financial performance of NHC based on several factors which were firm and government based. The data used was derived from the projects undertaken for a period of six financial years. This covered from the 1SI July, 2006 to 30th June, 2011 from different counties in the republic of Kenya. By the means of correlation and regression analysis, the researcher concluded that there were limited determinants of financial performance in real estate development, although the study further established that the main determinant of financial performance is disposable income of the target market. Interestingly the study further found out that the choice of a location of a project had a negative correlation on the returns derived which therefore implied that location of project does not directly influence the financial performance. In addition the study found out that the size of the houses differed from one class of target market to another which effectively affected the financial performance of the organization. The researcher therefore concluded that management has a managerial role to evaluate critically the demographic composition of the target market before choice of a project is determined. The other important costs inherent in house development such as the finishes, amenities and infrastructure also played a major role to tapping a particular class of market demand. Further ROI and Entropy analysis however failed to provide a clear relationship of financial performance between return on investment on entropy. The research interestingly found no major influence of the cost of leverage on financial performance of NHC mainly because the case of study is a state corporation which is subsidized by the government in its cost of investment of social projects through allocation of land and other infrastructural logistics.