Effect of Mortgage Financing on Growth of the Real Estate Sector in Kenya

Abstract

Mortgage financing is a key component of financial system that contributes to the development and depth of financial markets, as well as having the ability to have a beneficial impact on a country's financial and economic progress. An effective mortgage market guarantees long-term returns since it entices investors. Moreover, borrowers have better access to funds when the market is efficient, and this aids in stimulating economic growth. However, most financial institutions attach myriad of conditions and covenants which impede mortgages access which negatively affects mortgage credit to GDP ratio. Using this study, we tried to determine the impact that mortgage finance has on the development of the Kenyan real estate industry. Mortgage finance, interest rates, the unemployment rate, and inflation were all considered independent factors in this study. The response variable that the researchers attempted to explain was the expansion of the real estate industry. The data was collected on a quarterly basis over a period of ten years (from January 2011 to December 2020). A descriptive research approach was employed in the study, with a multiple linear regression model used to examine the connection between the study variables. The data were analyzed using Statistical Packages version 24. The study's findings yielded an R-square value of 0.595, indicating that the chosen independent variables could explain 59.5 percent of the variance in the real estate sector's development in Kenya, while the remaining 40.5 percent was due to other factors not investigated in this study. The independent factors exhibited a significant relationship with real estate sector growth (R=0.771), according to the research. The F statistic was noteworthy at a 5% level with a p=0.000, according to the findings of the ANOVA. This suggests that the model was adequate for explaining real estate expansion. Furthermore, the findings revealed that the sole major predictor of real estate expansion was the unemployment rate. Despite the fact that mortgage financing has a beneficial impact on real estate expansion, the impact is not statistically significant. Interest rates and inflation had a negative, although statistically insignificant, impact on real estate sector growth. According to the research, steps are required to manage the current levels of unemployment since they have a major impact on real estate industry development.