Role of Financing Options on the Growth of Real Estate in Kenya: A Survey of Real Estate Developers in Nairobi Metropolis

Abstract

Real estate business is an undertaking that has been perceived by many as a project that needs a lot of capital to initiate. In Kenya, investing in real estate hasn't been such a huge venture until the last 10 years. This research therefore aimed at establishing the perceived role of financing options on the growth of real estate in Kenya with a focus in Nairobi Metropolitan area. It is often difficult to fund big projects in real estate solely from personal savings. Therefore there is a need to use other sources of finance such as equity or self-financing, or mortgage from financial institutions like commercial banks, insurance companies and mortgage institutions or venture capital. This research paper was guided by four specific objectives; To assess influence of mortgage financing option on the growth of real estate in Nairobi Metropolis; To evaluate the effect of savings financing option on the growth of real estate in Nairobi Metropolis: To evaluate the effect of venture capital financing option on the growth of real estate in Nairobi Metropolis: To examine the influence of equity financing option on the growth of real estate in Nairobi Metropolis. This study used primary data collected from registered developers in Kenya with an interest in Nairobi Metropolis. The sample size was 81 out of a population of 100 developers registered with Kenya Property Developers Association. The study employed descriptive research design and data was analyzed through multiple regression analysis. This study found out that the variables addressed, only explain 7.1% of the growth of Real estate in Kenya. Other factors outside this research explain 92.9% of the growth in real estate. Due to the low explanation the researcher employed confirmatory factor analysis to determine model perfect of fit. The study found mortgage financing and equity financing the only two variables with a good fit. From this study, then there is a need for more research on those other factors that have spurred growth in real estate in Kenya. This study was carried out during the period May to August 2016.