Effect of mortgage financing on performance of real estate industry in Nairobi, Kenya
Mackenzie, Ruth Mbula
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Mortgage financing has as profound an effect on the value of income-producing real estate as on any investment vehicle, as it influences an individual's ability to purchase residential or commercial properties. The current competitive Real estate business has forced financial institutions to scrutinize their mortgage lending variances because of the important role credit market plays in the overall performance of the industry. The aim of this paper was to study the effect of mortgage financing on the performance of Real estate industry in Kenya. The following aspects were the specific objectives of the study; to examine the effect of interest rate, loan terms, mortgage risks, and inflation on performance of Real estate industry in Kenya. The population of interest in this study comprised of 182 real estate firms in Nairobi licensed and registered in accordance with the Estate agents Act.The study used both primary and secondary sources of data from published and audited annual reports of investments for the population of interest, C.B.K, KNBS and property price index from property consultants. Primary data was obtained from questionnaires that were administered to Real estate firm managers through the drop and pick later method. Data analysis was done using SPSS (Statistical Package for Social Sciences) and summarized using descriptive statistics. The results of the analysis were presented in tables, percentages, graphs and charts. From the findings on the effect of mortgage financing on financial performance of the Real estate industry, the study found that mortgage financing had positive influence on financial performance of Real estate. The study further revealed that interest rate affected the Real estate performance to a great extent as mortgage prices are principally determined by real interest rates. Prompt authorization and approval process of mortgage loans improves on loan terms and therefore Real estate performance. From the findings on the extent to which inflation influences investment decisions, the study found that inflation negatively affected investment decisions to large extent. However, default risks brought about when the market value of the property falls below the market value of the mortgage, and non occupancy risks, limited the willingness to invest. The study thus recommends that the management develops better mitigation strategies such as mortgage insurance to improve performance.