Effect of macroeconomic Variales on real estate prices in Kenya
The Kenyan real estate market has been experiencing a boom in the past ten years and the latest findings have shown that the trend will continue into the foreseeable future. In a report published by Knight Frank in 2014, real estate in Kenya has rapidly expanded to become the fourth largest contributor to the economy. The study sought to determine the effects of macroeconomic variables on real estate prices in Kenya. Descriptive research design was used and also regression was also used to establish the relationship between macroeconomic variables and real estate prices. The study covered a period of ten years and monthly data was collected from secondary data from documentation from previous studies, property reports and magazines, journals, data from Housing Finance Corporation, Central Bank of Kenya, Kenya National Bureau of Statistics and Hass Consult Limited. Test of significance was carried out using Analysis of Variance (ANOVA). The test was to confirm whether any linear statistical relationship exists between a dependable variable and the predictor variable. The study concludes that real estate prices affect the interest rates; this is because interest rates affect housing affordability and thus demand for new and resale homes and thus an increase in interest rates increase the cost of borrowing. The study also concludes that increase in GDP leads to increased investment in real estates which increase the supply of houses which thus reduce real estate prices. The study also concludes that there was a strong positive relationship between real estate prices and level of money supply and inflation. This is because increase in money supply gives rise to greater inflation uncertainty and this has an adverse impact on real estate market hence increasing the prices. The study recommends that; the government of Kenya through the central bank should regulate the interest rates and inflation growth via the various monetary policies. The Kenyan government through the ministry of infrastructure and treasury should fast track availability of low-cost but good quality housing to majority of the Kenyan population. The government of Kenya through the Central Bank should control the level of money supply in the economy in order to minimize excessive price fluctuations, and promote economic growth. Monitoring money supply would also guard against inflation and ensures stability of prices, interest rates and exchange rates. This protects the purchasing power of the Kenya shilling and promotes investment and economic growth. By doing this it will encourage increased investment in real estate which reduces the prices.