Impact of the 2007 – 2009 global financial crisis on the real estate investments in Kenya

Abstract

It is indicated that the financial crisis of 2007 to 2009 was largely triggered by the bursting of the United States real estate bubble and it has been considered as one of most serious global financial system meltdowns. This financial crisis suddenly unleashed economic and financial havoc throughout the world. Developed countries endured a serious financial crisis and deep economic recession, and emerging markets experienced a sharp slowdown in economic growth. Sub-Saharan countries were captured by the causes and effects of the global recession in advanced countries. Low-income-countries are more integrated with the world economy through trade, foreign direct investment, and remittances. The crisis significantly impacted these countries through reduced demand for their exports, lower remittances and foreign direct investment while aid flows were under threat. Kenya in particular experienced both the direct and indirect impact of the crisis. The objective of the study was to investigate the direct and indirect impact of the 2007 – 2009 financial crisis on the real estate investments in Kenya and establish strategies that safeguard the growth of the real estate sector. Secondary data from the Kenya National Bureau of Statistics collected for the period January 2006 to August 2010 was utilized and analyzed using SPSS to find out if there was a relationship between demand of housing and the set out variables. The results were drawn using tabulation and graphical representation. The results show that a trend of housing performance during the period of study was in general on an upward growth. An empirical study of factors such as foreign direct investment, foreign aid, remittances, commodity exports, tourism, which were transmission mechanisms of the financial crisis across the world that could impact the trend growth of the real estate sector in Kenya during the period of January 2007 to December 2009, was carried out. The study concludes there was a relationship between housing demand and exports, remittances, tourism and the rate of foreign direct investment. However the relation was not linear, but varied in different years. The effects of the 2007 – 2009 global financial crisis were low on the housing demand and housing supply as the trend performance of the housing has been seen on upwards performance in general with a big upward shift from 2010. Kenya is said to be experiencing a real estate market boom.