Foreign Direct Investment, External Debt And Real Estate Investment In Kenya

ABSTRACT

Development of the real estate sector immensely contributes to the economic growth and

development of the country through upgrading the living standards of the people by

providing better infrastructural facilities, social amenities, telecommunication facilities

and better housing. Kenya in recent years has experienced a surge in the growth of real

estate in the suburbs of its major towns and cities. This has been brought about by the

increasing pressure for modern housing units from the increasing number of the middleincome

people and the general population at large. On the other hand increase of foreign

direct investments in the real estate sector has been a contributing factor to the growth of

the real estate sector in Kenya. However, other factors such as external debt, inflation,

and institutional weaknesses such as corruption have been pulling this sector down. The

main objective of this study was to examine the effect of macroeconomic aggregates on

real estate investment in Kenya. The specific objectives were to: examine the effect of

foreign direct investment inflows on real estate investment in Kenya, determine the

effect of external debt on real estate investment in Kenya, establish the existence of

long-term relationship between foreign direct investment inflows and external debt on

real estate investment in Kenya and the moderating effect of urbanization on the

relationship between Foreign Direct Investment inflows, external debt and real estate

investment in Kenya. The study adopted analytical research design and a stochastic

model using quarterly time series secondary data for 11 years from 2007-2017 sourced

from Kenya National Bureau of Statistics economic surveys, World Bank and United

Nations Conference on Trade and Development website. Augmented Dickey Fuller test

for unit root revealed the presence of unit root that was corrected by first difference.

Clemente-Montañés-Reyes Unit-Root test for 2 structural breaks revealed presence of

structural breaks in (2010q3, 2011q3), ( 2010q4,2013q2), (2013q3, 2015q3) for real

estate, FDI and external debt respectively. Vector Inflation factor test for

Multicollinearity coefficient was 1.62