AN INVESTIGATION INTO THE IMPACT OF SELECTED MACRO-ECONOMIC FACTORS ON REAL ESTATE DEVELOPERS IN KENYA.

ABSTRACT

This study was carried out to investigate the impact of macro-economic factors on real estate developers in Kenya. The study’s objectives were firstly, to determine the financial challenges facing real estate developers in Kenya, to determine how macro-economic factors affect the accessibility of funds to real estate developers and lastly, to establish the macro-economic interventions that have been adopted by the Kenyan government to overcome the financial challenges facing real estate developers.

The study adopted a descriptive survey research design. Collection of primary data was done by use of questionnaires from thirty-two selected real estate developers who are the members of Kenya Property Developers Association. The area of study was Nairobi County. Secondary data was obtained for a period of five years (2013-2017). The amount of loans that have been extended to the real estate sector on an annual basis was obtained from the Central Bank of Kenya. The average annual corporate taxes paid by real estate developers for the five years was obtained from Kenya Revenue Authority. The average annual interest rate and average annual exchange rate between Kenya shilling and US dollar were obtained from the Central Bank of Kenya. The average annual inflation rate for the five years was collected from the Kenya National Bureau of Statistics.

It was established that real estate developers are faced with various financial challenges from a moderate to a high extent on a likert scale, the high cost of construction loans being ranked the highest. The findings also revealed that changes in macro-economic factors have a significant effect on the accessibility of funds. Most of the real estate developers agreed to a high extent that the interest rate capping that came into effect in September 2016 has made banks impose restrictions when it comes to borrowing loans. It was established that the central bank interventions has ensured the exchange rate remains relatively stable and that the government has ensured inflation rates remains at sustainable levels but also that the government does not provide subsidies to real estate developers. It was determined that the accessibility of funds to real estate developers has reduced since the government introduced the interest rate cap.

It is recommended that the government should critically evaluate the impact the interest rate cap has had on real estate developers, that the government should provide infrastructure grants and tax credits to real estate developers and that it should also strengthen the financial climate to allow investment vehicles such as Real Estate Investment Trusts to have impact.