Integrated Macroeconomic Variables and Financial Growth of the Real Estate Sector in Kenya

Abstract

The real estate sector has been growing over the years because of major infrastructural developments and high population growth in Kenya. However, the sector has been facing some challenges that have been affecting its growth. This research aimed to assess how macroeconomic factors influence Kenya’s real estate financial success. The research primarily focused on determining inflation, interest rates, exchange rates’ impact and economic growth on Kenya’s real estate sector. The study was underpinned by demand-pull inflation theory, the classical/neo classical theory for interest rates, the classical growth theory and purchasing power parity. The study employed causal research design and targeted three main Kenyan real estate developers in Kenya; Cytonn Investments, Hass Consult, and Knight Frank. In light of the small target population, a census approach was used and the research employed secondary data. As a result, secondary data from the property developers’ yearly market reports from 2016 to 2022 was gathered. Pearson’s correlation and panel data analysis methods were also employed. The findings revealed that the relationship between inflation, interest rates, exchange rates and economic growth revealed R-squared value of 0.8057, implying that the macroeconomic variables explains around 81% of the variation in financial growth within the real estate sector. The study also found that inflation had positive and significant effect on financial growth (β =0.0045187, p=.048<.05), interest rate had positive and significant effect on financial growth (β =0.044177, p=.011<.05), exchange rate had negative but insignificant effect on financial growth (β =-0.0178337, p=0.227>.05), economic growth had positive and significant effect on financial growth (β =0.0980943, p=0.007<.05). The study recommends that financial institutions, policy makers, and developers should implement measures to mitigate the adverse effects of high inflation on the real estate sector. Keywords: Inflation, Interest rates, Exchange rates, Economic growth, Macroeconomics factor.