The Relationship Between Inflation Rates and Real Estate Prices in Kenya. Case of Nairobi County

Abstract

Real estate industry has been one of the most resilient, vibrant and profitable in the world today. The growth has mainly been driven by urbanization, a strong economy and stable legal environment, significant credit expansion and increased spending on infrastructure by the government. Fluctuation in property prices have been experienced in many countries, this is attributed to the financial instability result from the house price boom and bust. According to the Kenya National Bureau of statistics, in Kenya the real estate has been a driver of growth in the past five years. Real estate markets are continuously adjusting to equilibrium where price range is adjusted according to variation in supply influenced by changes national and regional economies. Inflation has pushed up the cost of doing business contributing to the cutting down to the number of properties. This project objective is to investigate the relationship between property price and the inflation rates. The causal research design was used in this study and secondary data which was analyzed using SPSS package. From the findings it was observed that there is no clear defined relationship between the property prices and inflation rates. From the analysis of variance (ANOVA) statistic the study shows that the processed data has the significant level. This indicates that the data is ideal for making conclusion and it also shows that the data sampled represent the population. We can observe that the regression sum of squares is very huge implying that much of the variability is actually accounted for in this regression model. The p-value=0.000<0.05 (significance level) indicating that the model is appropriate and significant. It can also be observed that property prices has been on a continuous increase over the years but gradually while inflation rate rose sharply to its peak (double digit )highest of 19.72% in the last quarter of 2012. It has been fluctuating to extreme variations. The findings of this study shows that there is no clear relationship between the property price and the inflation rate.