Determinants of Demand for Credit by the Real Estate Sector in Kenya

Abstract

The study investigates the determinants of Kenya’s real estate sector demand for credit. The study used quarterly time series data for the period 2005 Q1-2018 Q4 and the Vector Error Correction model. The results indicate that GDP and inflation have a positive effect on the credit demanded by the real sector. Their impact was however found not to be significant. Real short- term and long term interest rates depicted a negative and positive impact respectively whereas increase in the exchange rate was found to negatively impact the credit to the real estate. The growth in the real estate sector has a positive and significant impact on the credit demanded by sector. However, credit to other sectors (households) has a negative effect which was also found to be significant. Domestic debt exhibited a negative and significant effect on the credit to the real estate sector whereas interest capping was found to have a positive effect on the credit demanded though the effect was insignificant. The study established that the macroeconomic environment plays a vital role in the determination of credit demand by the real estate sector in the country.