The performance of real estate market -the case of Central Business District (CBD) of Nairobi

Abstract

This research project set out to compute and compare the returns of three kinds of investments in Kenya namely real estate, 91-day treasury bills and quoted ordinary shares. The Research project further computed the performance index of the real estate and compared this index to the Nairobi Stock Exchange (NSE) 20 Share Index. In order to do this, a sample of 30 Central Business District (CBD) properties with a total value of KShs 10 billion as at December 2002 was used. Effectively, therefore, the real estate return and index computed in this research represents the CBD real estate. Chapter one of the research project introduces the context of the study by defining real estate and its role in investment, stating the research problem and objectives. Chapter two reviews the literature of both real estate and performance measurement through index numbers. In chapter three, the researcher expounds on the research methodology and in particular explains the choice to use the NSE 20 Share Index methodology in computing the CBD real estate index. The researcher also states the rationale of using a five years study period. Chapter four presents the findings while chapter five concludes the study and recommends further related areas of research. The summary findings of the research are that CBD real estate achieved an average return of 10% in the five years of the study. The 91-day treasury bills achieved average return of 14% over the same period. However, the return of 91-day treasury bills return was much more varied than that of the CBD real estate and as at 2002 below it. Quoted ordinary shares achieved negative returns in three of the five years study period mainly driven by huge capital losses. When compared to the NSE 20 Share Index, which declined by 65% over the study period, the CBD real estate index moved in the opposite direction gaining a total of 14% over the five years study period. One of the strong recommendations of this-research was that an ongoing computation of the real estate returns and index, just like that of NSE, should be established in order to give investors a measure to evaluate their investment in real estate vis-a-vis that of other investments