Effect of mortgage finance on development of the real estate sector in Nairobi county

Abstract

The UN-Habitat (2011) noted that real estate development in most emerging economies in Africa face a dilemma following the inability to adequately finance urban shelter, amidst a dire need and ever-increasing demand for housing. Mortgage loans and real estate financing is very important in housing investment as in most cases it is the key for making a transaction feasible and profitable. According to Marcum, & Goddard (2012), the real estate sector experienced a great expansion in the years 2002 to 2007 due to low cost of mortgage finance worldwide, which encouraged home ownership. According to UN-Habitat (2009), home ownership has become a significant measurement of economic health in USA and Australia with almost 63% and 45% of home owners acquiring their homes through mortgages respectively. The situation in Nairobi is no different from that of African emerging economies. Little information is available concerning the role of mortgage in housing development in Nairobi, whilst at the same time the availability and access to mortgage finance is limited. It is against this background that this study undertakes to determine the effect of mortgage finance on development of the real estate sector in Nairobi County. The interest of this research is to establish opportunities for growth in housing in Nairobi through the availability and access to mortgage finance. The study was conducted as a descriptive survey. The target population consisted of 33 licensed mortgage lenders in Kenya. However, data available was for 25 mortgage lenders which were sampled through the CBK where aggregate values of mortgage were obtained for the period 2008 to 2012. Collection of data was done by way of in-depth document analysis guide. The researcher edited and coded the data into the SPSS. Both descriptive and inferential statistics were used to analyze the data. In descriptive statistics, the researcher used mean and standard deviation; while in inferential statistics multivariate regression analysis was used to determine the relationship between variables. The study found that the average of house units for the 25 sampled mortgage companies as extracted from the financial and annual statements indicated an upward increase over the 5 year period, with the highest being 3,220 in 2012. In addition, the standard deviation depicts a variation in number of house units build annually. The study also found that, the averages for annual housing loans allocated by the 25 sampled mortgage lending companies rose from 5.70 to 5.97. It is also evident that the sampled mortgage lending companies extended almost the same amount of annual housing loans as the standard deviation is so small (less than 1) depicting minimal variability. The study also found that, from the annual averages of the 25 mortgage lending companies, it is evident that annual number of house units built increased with increase in the amount of annual housing loans allocated. The key finding of the study was that, there is a positive relationship between annual number of house units build and annual housing loans allocated. In conclusion therefore, the move by the mortgage lending firms to allocate more housing loans to real estate developers significantly influences the number of housing units developed in Nairobi County.