Influence of Foreign Direct Investment on Performance of Real Estate Development Projects in Kilimani, Westlands Sub County, Nairobi County, Kenya

Abstract

Over the past ten years, the real estate sector has been on steady growth with many investors focusing on the sector due to its payback and lesser risks. Foreign investors have also been focusing on the real estate sector with investors from China, India and other countries increasingly investing in high-rise buildings across the country especially in Nairobi County. However, as noted by previous reports, the performance of real estate projects has been dropping significantly in the recent past with most of the buildings remaining delayed for years. This is despite the recorded increase in foreign direct investment and most recently the focus by the government on housing as one of the big-four agendas. It is on this background that the study seeks to answer the question; what is the influence of foreign direct investment on the performance of real estate development projects? The aim of this study is therefore was to investigate the influence of foreign direct investment on performance of real estate development project in Kilimani area, Westlands Sub- County, Nairobi County. The study was guided by the following specific objectives; To determine how equity capital influences performance of real estate development projects, to assess how reinvested earning influences performance of real estate development projects, to establish how intra company loans influences performance of real estate development projects, to establish how off-plan purchases and sales influences performance of real estate development projects, and to assess how government policy moderate the relationship between foreign direct investment and performance of real estate development projects in Kilimani, Westlands sub county, Nairobi County. The study was anchored by four major theories which are pecking order theory, arbitrage pricing theory, trade-off theory and market timing theory. Descriptive research design was used while the target population was the real estate companies in Kilimani area, Nairobi County. There are forty-eighty registered real estate companies in this area. The units of observation were the directors, finance officers and investment managers from the forty-eight companies. This made a total of one hundred and forty-four respondents. Purposive sampling method was employed where the company directors, finance officers and investment managers were purposively picked. The data was collected using structured questionnaires and analyzed through descriptive and inferential statistical analysis techniques. The findings were presented in form of frequency tables for easier interpretation and understanding. The study obtained a response rate of 81.3% which was considered adequate for analysis. The findings revealed that equity capital, reinvested earnings, intra-company loans and off-plan sales and purchases significantly and positively influenced the performance of real estate development projects in Kilimani area, Westlands Sub-County. Government policy was also found to significantly moderate the relationship between foreign direct investments and performance of the real estate development projects. The study concluded that through equity capital, reinvested earnings, intra-company loans and off-plan sales and purchases, the real estate development projects performance better. It is therefore recommended that the real estate development companies through their management embrace FDIs through equity capital, reinvested earnings, intra-company loans and off-plan sales and purchases so as to steer the performance of their development projects.