Effect of Investor Knowledge on Subscription Rate of Real Estate Investment Trusts Listed at the Nairobi Securities Exchange

Abstract

Real estate investment trusts (REITs) have gained prominence as an investment option in Kenya, offering individuals the opportunity to invest in the real estate market without the complexities of direct property ownership. Understanding the factors influencing investor decisions and subscription rates for REITs is of paramount importance for market growth and financial stability. The primary objective of this study is to assess the impact of investor knowledge on the subscription rate of REITs. It also aims to explore the relationship between demographic factors such as age, gender, and income level with subscription rates. The study was anchored on Efficient Market Hypothesis (EMH), behavioral finance theory, and risk perception theory. The study adopts a descriptive research design and collects primary data through structured questionnaires administered online. The study population comprises 79 property developers, 27 fund managers, and 25 stock brokers who are members of the REITs Association of Kenya. The questionnaire employs a 5-point Likert scale to assess investor knowledge, demographic variables, and subscription rates. The data analysis includes descriptive statistics, correlation analysis, and regression analysis to examine the relationships between variables. The regression analysis indicates that investor knowledge and investor's age are the key drivers of subscription rates for REITs, with positive and negative coefficients, respectively. The model explains a significant proportion of the variance in subscription rates, as reflected by an R-squared value of 38.1% and overall model significance indicated by a p value of 0.000 which is less than 0.05. The study concludes that investor knowledge is a crucial determinant of subscription rates for REITs at the Nairobi Securities Exchange. Enhancing investor education and providing clear information about the real estate market and REITs can boost investor knowledge and, consequently, subscription rates. The study recommends collaborative efforts between regulators, industry associations, and educational institutions to promote investor education and awareness about REITs. Additionally, tailored marketing strategies should target specific age groups, particularly younger investors who demonstrate a higher inclination to subscribe to REITs. Future research should delve into the specific aspects of investor knowledge that have the most significant impact on subscription rates. Exploring the role of psychological and behavioral factors in investor decisions and employing a longitudinal approach could offer a more comprehensive understanding of investor behavior and its evolution over time.