Effect Of Real Estate Financing On Performance Of Commercial Properties In Kenya

ABSTRACT

Real estate financing has a significant effect on the value of income-producing real estate as it has on any investment vehicle. The effect is evident as it impacts on one’s capability to purchase commercial properties. The current competitive real estate business has led to most financial institutions and investors scrutinizing the financing variances given the important role that credit market and the investors play in the performance of the real estate industry. The aim of this study was to examine the effect of real estate financing on performance of commercial properties in Kenya. The following aspects formed the specific objectives of the study; to examine the effect of mortgage financing; equity financing and savings as financing platform on the performance of commercial properties in Kenya. The population of interest in the study was made up of 12 members of KPDA selected randomly from a total of 69 members. The study employed secondary sources to collect data. Some of the information that was relied on include the data from published and audited annual reports of investments for the target group, KNBS, C.B.K, property indices from the property consultants. The data was obtained through the desk review of mortgage interest rates and savings rate from banks, examination of ROI of commercial properties and their shareholding equity. Analysis of data was done through the help of SPSS (Statistical Package for Social Sciences) and correlational statistics summary provided. The results of the analysis are presented in tables, percentages, graphs and charts. The descriptive results obtained from the study show that the dependent variable, “return on investment as a measure of performance for the commercial property” has been considerable. The independent variables also supported the performance of commercial property. Nonetheless, all the independent variables were not statistically significant. The mortgage interest rate accounts for return on investment of commercial properties by 52.2%, savings rate alone is responsible for 11.06% of commercial property growth and equity shareholding accounts for 35.69% of the growth in commercial properties as per the ROI.