Influence of Macroeconomic Factors on Performance of Real Estate Investment Trusts in Kenya

Abstract

The need for effective management of REITS has gained attention globally. REITs were initially created by the United States Congress in the 1960’s as a vehicle through which small investors could gain access to large scale, income producing real estate properties. However, REITs has suffered from a lack of popularity due to other tax-sheltered real estate investments, such as limited partnerships. In Kenya, despite a rather slow start, in 2017, the only listed REIT in Kenya saw its price decline by 13.4 per cent. REITS has not been managed effectively such that their performance has been greatly affected. The present study therefore sought to investigate influence of macroeconomic factors on performance of real estate investment trusts in Kenya . The specific objectives were; to determine the influence of Exchange rate, to establish the influence of Interest Rate, influence of Inflation and to investigate the influence of economic growth on performance of Real Estate Investment Trusts (REITs)Kenya. This study was grounded on modern portfolio theory, pecking order theory, arbitrage pricing theory and purchasing power parity (PPP). The study used descriptive survey research. The findings show that that Exchange rate has a significant influence on performance of Real Estate Investment Trusts in Kenya ( β =0.499; p<0.05) . Interest Rate has no significant influence on performance of Real Estate Investment Trusts (REITs) in Kenya ( β =0.519; p>0.05) . Inflation rate has a significant influence on performance of Real Estate Investment Trusts (REITs) in Kenya ( β =0 .079 ; p<0.05) . Economic growth has no significant influence on performance of Real Estate Investment Trusts (REITs) in Kenya ( β =0 .040 ; p>0.05). The finding concludes that Exchange rate has an influence on performance of Real Estate Investment in Kenya. Therefore, an increase in exchange rate affects the stock prices of REITS thus affecting their performance. Interest Rate has a significant influence on performance of Real Estate Investment Trusts hence affecting the volatility of REIT property market. Inflation rate has a significant influence on performance of Real Estate Investment Trusts (REITs) in Kenya. Finally, e conomic growth has a significant influence on performance of Real Estate Investment Trusts (REITs) in Kenya. Therefore, economic growth develops investors financial base to invest more in REITS. The study recommends that factors such as inflation rate should be addressed as they affect the exchange rate which in turn affects the performance of Real Estate Investment Trusts (REITs). Secondly, interest rate should be harnessed by the commercial banks in order to encourage investors in venturing Real Estate Investment Trusts. This will promote performance of REITS. Thirdly, a ll sectors of Economy should be stimulated to growth in order to attract more investment in REITs.