The effect of mortgage financing on performance of real estate market in Nairobi, Kenya

Abstract

Real estate markets have gained increased attention over the past few years in both the developed and developing economies. This is brought about by their economic importance in both being a source of revenue and creation of employment opportunities. Due to the large capital requirement in real estate investment, the financing of the development cannot be entirely on the personal saving thus the need for other sources of financing such as mortgage financing. Despite the increase in the importance of the real estates, there is limited empirical evidence concerning its current trends and how it is impacted by mortgage financing. The objective of the study was to determine the effect of mortgage financing on performance of real estate market in Nairobi, Kenya. The independent variables included; number of mortgage loans, amount of mortgage loans balances, GDP growth and inflation rate while the dependent variable was the performance of real estate market. The study finds the number of mortgage loans, amount of mortgage loans balances, GDP growth and inflation rate to have a negative effect on the real estate market in Kenya. The study, by use of the research variables concludes a positive and significant effect between mortgage financing and real estate market performance which is supported by a coefficient of correlation of 0.746 that was obtained. The study recommends that the government through the Central Bank and mortgage lending firms execute policies that ensure that low interest rates is charged on mortgages.