The Effect of Macro-economic Variables on Growth in Real Estate Investment in Kenya

Abstract

The Real Estate industry has increasingly attracted the attention of investors in the recent past. With such increase, it has been expected that the industry will significantly grow and thus fulfill its role in provision of substantive returns as well as the basic need of housing in Kenya. This has not been the case and thus this study sought to establish the effect of macro-economic variables on growth in real estate investment in Kenya given they are key in the growth of the industry. The study followed a descriptive research design. The study used secondary data on annual real estate investments growth as computed from the HassConsult. The study obtained the secondary data on the selected macro-economic variables including average annual Exchange Rate (Ksh/USD) (%), average annual growth in Diaspora Remittances (%), average annual growth in Money Supply (M3) (%), average annual Inflation Rate (%), average annual GDP growth (%). The data on macro-economic variables was obtained from Central Bank of Kenya (CBK) and Kenya National Bureau of Statistics (KNBS). The data sets covered the period between 2000-2013. The data was summarized or/and analyzed using excel spread sheets and statistical package for social sciences. The findings were summarized in graphs and tables. Regression analysis was conducted in order to establish various inferential statistics; R, R-Square, P-Value and F-Test statistics to determine the relationship, strength of the relationship and the statistical significance of the model. Notably, at least one or more of the selected macro-economic variables and the real estate growth declined over the periods; 2002-2005, 2007-2010, and 2011-2013. These periods were just before, during or/and the years immediate to national elections. It is therefore worthy noting that the politics around and during the electioneering period have an adverse effect on most macro-economic variables, which in turn adversely affects real estate investments growth in the country. Furthermore, the study established a strong positive relationship between the selected macro-economic variables; Exchange Rate fluctuations, Growth in Diaspora Remittances, Growth in Money Supply, Inflations, and GDP Growth since R and RSquare was 0.872 and 0.761 respectively and because their corresponding coefficients were positive. These results were supported by both P-Value and F-test statistics. However, P-Values corresponding to each of the macro-economic variables indicate that the variables were insignificant on their own in influence real estate growth. The study concludes that there is a strong positive relationship between the macro-economic variables and real estate investment growth. Also, the study concludes that growth in; exchange rate, diaspora remittances, money in circulation, inflation rate, and real GDP growth do not individually influence the growth in real estate investment in the country, but the combination effect of the change of the macro-economic variables do influence real estate growth. It is therefore recommended that policy makers and planners plan in advance to be able to Manage Exchange rates and inflation rates. Proper and peaceful political environment should be encouraged at all election periods to cut on the adverse effects of bad political environment to the economy.