Determinants Of Financial Performance Of Real Estate Investment Trusts In Kenya

ABSTRACT

In Kenya, the housing sector has been characterized by inadequacy of affordable and decent housing. There is a paucity of studies on the lack of growth and development of viable alternatives to the traditional real estate growth model despite incentives such as waiver of corporate tax on such products. Equally, there is a glaring lack of literature on enablers and constrains to the uptake of REIT in Kenyan market. The general objective of the study was to find out the determinants of financial performance of real estate investment trusts in Nairobi County. In particular, the study examined the influence of government policies, economy, interest rates and demographics on the aforesaid performance. The study was carried out in Nairobi County where the focus was on the REITs operating in this county. The study was guided by classical theory, price theory and interest rate theory. The researcher adopted descriptive research design. The study was also guided by an empirical model. The target population for the present study comprised of managers working with real estate investment trusts in Kenya. There were 36 managers who constituted the study population. The study adopted a census design. The instrument used to facilitate data collection was a structured questionnaire. The requisite permits and consents were sought prior to data collection. The instrument was pilot tested on randomly selected managers working with branches of REITs in Nakuru town. The purpose of the pilot study was to determine both the validity and reliability of the research instrument. The Statistical Package for Social Sciences software facilitated data analysis. Both descriptive and inferential statistics were used in the analysis. The results of the study were presented in tables. The study found that the relationship between government policies, economy and demographics on one hand and financial performance of REITs on the other was positive, strong and significant. It was established a positive, moderately strong and significant relationship between interest rates and financial performance of REITs. Moreover, it was noted that economic factors had the strongest relationship with performance of REITs while interest rates had the weakest relationship with the same. The study concluded that the government policies put in place were favourable towards enhancing the performance of REITs. The economic factors were concluded to have a great influence on performance of REITs in Nairobi County. Among the four determinants under investigation, interest rates were inferred to have the list implication on the performance of REITs. Demographics were inferred to be consequential to the performance of REITs. The real estate investment trusts are advised to pass on to their customers the financial benefits they get from the tax waivers offered by the government. The REITs are recommended to lay down and implement strategies that can initiate demand for housing. Real estate investment trusts are advised to ensure that their prices are not too exorbitant to attract customers as they factor in various factors when stipulating their interest rates. The study recommends that REITs should factor in the demographics of Kenyans when coming up with various housing products.