Effect of Selected Macroeconomic Volatility on Financial Performance of the Real Estate Sector in Kenya
Abstract
The Kenyan real estate sector has experienced accelerated growth since the turn of the
millennium. However, in the last 5 years (2017 to 2021), the performance of the real
estate sector in Kenya has slowed down. This can be explained by several factors and
macroeconomic volatility is hypothesized to be one of these factors. The real estate
sector has faced increasing prices of goods and services due to rising inflation,
unpredictability of interest rates and fluctuation in exchange currencies. Such
unfavorable macroeconomic factors may cause great problems in real estate sector
financial performance in Kenya. The objective of this research was determining the
effect of selected macroeconomic volatility on Kenya’s performance of the real estate
sector. The study was based on capital asset pricing model and supported by arbitrage
pricing theory as well as modern portfolio theory. The independent variables were
interest rate volatility, inflation rate volatility, exchange rate volatility and economic
growth volatility. The dependent variable that the research endeavored to describe
was the financial performance of the Kenyan real estate industry. The data was
obtained on a quarterly basis for a ten-year duration (Jan. 2012 to Dec. 2021). A
descriptive research technique was applied in the research, with a multivariate
regression model utilized in examining the link between the research variables. The
research conclusion resulted in 0.761 R-square figure, signifying the selected
independent variables could account for 76.1% in the Kenya financial performance
variation in the real estate sector, while the other 23.9 percent was as a result of other
factors not explored in this research. The F statistic was significant at a 5% extent
possessing a p=0.000. This indicates that the model was effective in explaining how
Kenya's real estate market performed. Further, the conclusions demonstrated that
higher inflation rate volatility and economic growth volatility yields a substantial rise
in performance in the real estate sector while interest rate volatility and exchange rate
volatility did not possess significant effect on real estate sector financial performance.
The research recommends that there is need to manage inflation rate volatility and
economic growth volatility since they have a major impact on real estate sector
performance. The research further acclaims the necessity for future researchers to
conduct a study for a longer period of time to capture the effects of economic cycles
like recessions and booms.
Publisher
University of Nairobi
Rights
Attribution-NonCommercial-NoDerivs 3.0 United StatesUsage Rights
http://creativecommons.org/licenses/by-nc-nd/3.0/us/Collections
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