Relationship Between Financing Sources and Real Estate Growth in Homa Bay Town, Kenya

Abstract

The real estate industry contributes 28% to Kenya's GDP. Studies show an average annual growth rate of 16% in the country with that ofHoma Bay town being 3% indicating slow growth. Prior studies on real estate indicate a possibility of financing sources influencing real estate growth. However, the relationship between financing sources and real estate growth in Homa Bay town is unknown. Specific studies focusing on the role of mortgage financing, Investment Trust financing and private equity financing on real estate growth in Homa Bay town are missing. The specific objectives of the study were to; evaluate the relationship between Mortgage financing and the growth of real estate in Homa Bay town; determine the relationship between Investment Trusts financing and the growth of real estate in Homa Bay town, and establish the relationship between Private Equity financing and the growth of real estate in Homa Bay town. The research was based on the Simulation and Structural Form Theories. Correlational research design was employed in the study. The population of the study was the 312 real estate developers and agents in the town. Random sampling technique was used to select a sample of 199 real estate developers and agents. Questionnaires were used to collect primary data while content analysis was used to collect secondary data. Test-retest coefficient of 0.81 and CVI of 0.78 were obtained to establish reliability and validity of the questionnaires respectively. Multiple regression analysis was used to analyse data and the results were presented using tables and figures. It was established that real estate financing has a high correlation with the growth of real estate, (r = 0.856, p= 0.043) and financing sources explain 73.3 percent of the growth of real estate (R2= .733). Furthermore, mortgage financing positively and significantly influences real estate growth (j3= 0.346, p= 0.000); Investment Trust financing has no significant influence on real estate growth (j3= 0.194, p= 0.063); and that private equity financing has a positive significant influence on real estate growth (j3= 0.272, p= 0.00). Therefore, a unit increase in mortgage and private equity financing results to 34.6% and 27.2% growth in real estate respectively. The study concludes that growth of real estate significantly depends on financing sources. The study recommends that mortgage financing institutions make mortgage financing more accessible; Investment Trust financing be simplified; and that banks private equity finance more accessible. The findings of this study are likely to benefit mortgage institutions when lending to their customers to finance homes and business offices. In addition this research may stimulate academics and encourage further studies in the area of real estate financing.