EFFECTS OF INTEREST RATES ON THE PERFORMANCE OF REAL ESTATE INDUSTRY IN KENYA: A CASE OF NAIROBI COUNTY

Abstract

Purpose: The study sought to determine the effects of interest rates on the performance of real estate industry in Kenya: A case of Nairobi county.Methodology: The study adopted a descriptive survey research design.Results: The study findings revealed that lending interest rates had a negative and significant relationship with real estate growth in Nairobi. The findings show that deposit interest rates were insignificantly related to growth of the real estate firm in Nairobi. The long run model findings also revealed that overdraft interest rates had a significant relationship with real estate growth in Nairobi. The findings revealed that inflation had a negative and significant relationship with performance of real estate firms in Nairobi. GDP growth was found to have a positive relationship with the performance of real estate firms though the relationship was insignificant.Unique contribution to theory, practice and policy: The study findings revealed that lending interest rates have a negative and significant relationship with real estate growth in Nairobi. The study recommends that the CBK should implement monetary policies that aim to reduce the lending interest rates that financial institutions charge on lending so as to bring stability in the industries including real estate industry. The study recommends that the Central bank of Kenya as well as the Treasury should come up with monetary policies to regulate the rate of volatility in inflation rate in the long run since long term investors in real estate are likely to suffer loses if the economy is characterized by unstable rates of inflation. The study findings also indicated that GDP growth has a positive relationship with the performance of real estate firms in the long run. The study recommends that the government should reexamine the strategies and policies that aim to spur GDP growth.