Effect of Foreign Direct Investment on the Performance of the Real Estate Sector in Kenya

Abstract

Over the years the Kenyan economy has enjoyed several developments in terms of infrastructure and policies as well as experts relocating in Kenya and corporations interested in expanding operations in Kenya. Foreign Direct Investment has become an area of concern to many developing nations due to the economic benefits it presents to the host nation. The role played by real estate sector in the economy has become critical especially in emerging economies. As the property market around the world is experiencing a bubble, developments in FDI has ensured the real estate market has remained strong with the demand for middle to high income housing remaining steady. This study sought to establish the effect of FDI on the performance of the real estate sector in Kenya. The study adopted a descriptive research design where secondary data was used and the analysis was done using SPSS software. The study used both descriptive and inferential statistics to analyze the collected data. Inflation and interest rates were used as controlling variables. The study concluded that foreign direct investment, interest rates and inflation rates all affect the performance of real estate sector in Kenya with foreign direct investment having the highest effect, followed by inflation and finally interest rates. Together they were established to contribute to 49% change in performance of the real estate sector. Additionally, foreign direct investment was established to have a positive effect on the performance of the real estate sector while inflation and interest rates were established to have a negative effect on the performance of real estate sector. Further, the study established that Foreign Direct Investment, Inflation and interest rates were statistically insignificant individually. Test of significance at p-value of 0.004 and F-test value of 6.89 with a confidence level of 0.05 indicated that multiple regression model was significant in explaining the relationship between FDI and performance of real estate sector in Kenya. The study recommended that national government ought to create a conducive climate to encourage more investments in the Kenyan Real estate Sector from both local and foreign investors, financial institutions should offer attractive lending interest rates on mortgages to attract more real estate developers to the sector, financial institutions should strive a balance between the retaillending and interest rates charged to real estate developers and regulators should put in place strong monetary and fiscal policies to minimize the negative effects of inflation and interest rates on the performance of real estate sector.