Financing Options and the Sustainable Development of Real Estate in Nairobi Metropolitan Area

Abstract

Real estate business is an undertaking that has been perceived as a project that needs a lot of capital to initiate. In Kenya, investing in real estate has been a huge venture for the last 10 years as demand for housing continues to rise. This research aimed at establishing the perceived role of financing options on the sustainable growth of real estate in the Nairobi Metropolitan area. It is difficult to fund big projects in real estate solely from personal savings. There is a need to use other sources of finance such as equity, mortgage, Real Estate Investment Trusts (REITs) Mezzanine Financing, Government Support programs or venture capital. This research paper was guided by the following specific objective; To assess the influence of mortgage financing options on the sustainable development of real estate in Nairobi Metropolitan area. This study used primary data collected using a structured questionnaire from registered developers in Kenya with an interest in Nairobi Metropolis. The sample size was 81 out of a population of 100 developers registered with Kenya Property Developers Association. The study employed descriptive research design and data was analyzed through multiple regression analysis. The study found mortgage financing variables contributed immensely to the sustainable growth of the real estate sector in the Nairobi Metropolitan area. An increase in mortgage finance increases growth in real estate by 20.7% while all other factors remain constant. According to Confirmatory Factor analysis, the developers were of the view that the amount available to them was enough to support growth in real estate and that there is no information asymmetry about mortgage financing repayments. The results further showed that credit rating determines the amount available and the repayment period. The study concluded that mortgage financing was necessary for the growth of real estate in the Nairobi Metropolitan area.