CAPITAL AS A FACTOR OF PRODUCTION AND GROWTH OF COMMERCIAL REAL ESTATES IN MACHAKOS COUNTY, KENYA
Purpose of the study: The purpose of this study was to examine the influence of capital as a factor of production on the growth of commercial real estate in Machakos County, Kenya. In Kenya, real estate recorded a growth of 5.8% in September 2018 which was the slowest registered since 2014. Population growth rate is faster than the provision of new housing and housing infrastructure. Real estate provisions have diminished besides the government of Kenya’s commitment to provide affordable housing for the period between 2018 and 2022.
Statement of the Problem: In 2018 the real estate sector in Kenya recorded its slowest annual growth in four years, giving weight to property market reports that signaled a slump in demand despite increased supply of new housing units.
Research Methodology: The study adopted a cross-sectional survey research design. The target population for this study was made up of 374 registered property developers with Kenya Property Developers Association operating in Machakos County.The study used census approach to study all the 374 registered property developers. Prior to commencement of the actual study, 40 respondents from Kajiado, a neighboring county to Machakos were used in a pilot study to pre-test the research instrument. The researcher triangulated both structured questionnaires and open ended interview guide to gather and saturate data from the respondents. While the interview guides were bent to gather in-depth qualitative data from the real estate agents, the structured questionnaire was used to collect quantitative data from the respondents who develop the real estates. Both quantitative/ numerical data and qualitative/ descriptive data were collected using structured questionnaire and unstructured interview guide respectively. Qualitative data was analyzed using descriptive statistics while quantitative data was analyzed using inferential statistics. Statistical Packages for Social Sciences (SPSS) software was used for higher statistical computations.
Results: The findings revealed that there was; a positive and significant relationship between capital as a factor of production and growth of commercial real estate in Machakos County, Kenya (β =0.275, p=0.000).
Conclusion: Based on the findings the study concluded that investments for most commercial real estates in Machakos County, Kenya come from personal savings and equity loans from banks; interest rates have a profound effect on the value of income-producing real estate in Machakos County, Kenya just like they do on any other investment.
Recommendation: The study therefore recommended that commercial real estate developers in Machakos County needed to mobilize large amounts of private capital from either primary or secondary market in order to start tackling its unmet housing demand. Growing the size and reach of the mortgage market is part of the solution for the upper and middle income urban segments of the population. Mortgages alone cannot be the only hope to satisfy the entire housing demand. Solutions were also required for lower income groups in the form of housing microfinance, rental frameworks and financing for self-construction, especially on an incremental basis.
Keywords: Capital, Commercial, Real Estate, Factor of production, Growth, Machakos County, Kenya
Barkham, R., Bokhari, S., & Saiz, A. (2018). Urban big data: city management and real estate markets. GovLab Digest: New York, NY, USA.
Bower, J., & Buckley, R. (2020). Housing policies in Rwanda.
Brim, O. (2017). The economic theory of representative government. Routledge: London, UK.
Chege, P. W. (2017). Factors Affecting Housing Supply in Nairobi County, Kenya (Doctoral dissertation, KCA University).
Chege, S. W., & Bett, S. (2019). Total Quality Management Practices and Performance of Organizations in the Real Estate Industry, Case of Property Developers in Nairobi City County, Kenya. International Journal of Current Aspects, 3(IV), 14-31.
Cummings, T. (2013).Risks assessment in real estate development: an application of analytic network process.Liverpool: Liverpool John Moores University.
Dabara, D. (2015). The inflation-hedging performance and risk-return characteristics of residential property investments in Gombe, Nigeria.
David, M. & Zhu, W. (2014).International Real Estate Fund Vehicles using opportunistic strategies: An Agency Theory Based Analysis.Working Paper Series # 06-002. Real Estate Management Institute (REMI)
Gitau, G. G., Kiragu, D. N. U., & Riro, G. K. (2019).Effect of Heuristic Factors and Real Estate Investment in Embu County, Kenya.
Guo, P., Zhang, X., Zhu, J., & Sun, L. (2018). The Moderate Investment Scale Study of Real Estate Promoting Economic Growth. In ICCREM 2018: Analysis of Real Estate and the Construction Industry (pp. 238-246). Reston, VA: American Society of Civil Engineers.
Ibbotson, R. G., & Siegel, L. B. (2018).Real Estate Returns. A Comparison with Other Investments.
Jia, S. (2019). Supervision of and Response to China’s Real Estate Bubble: The Effects of the Loan-to-Value Ratio Policy.
Kauškale, L., & Geipele, I. (2014).Urban Entrepreneurship Development Trends in Real Estate Market in Latvia. Globalization, 1987, 6.
Kauškale, L., & Geipele, I. (2017). Integrated approach of real estate market analysis in sustainable development context for decision making. Procedia Engineering, 172, 505-512.
Kodongo, O., Mokoaleli-Mokoteli, T., & Maina, L. N. (2015). Capital structure, profitability and firm value: panel evidence of listed firms in Kenya. African Finance Journal, 17(1), 1-20.
Koval, V., Slobodianiuk, O., & Yankovyi, V. (2018). Production forecasting and evaluation of investments using Allen two-factor production function.
Kuria, A. M., Riro, G. K., & Kiragu, D. N. U. (2018). Effect of prospect based behavior biases on the performance of real estate investments in Kenya.
Mwathi, J., & Karanja, J. M. (2017).The effect of financing sources on real estate development in Kenya. International Journal of Finance and Accounting, 2(2), 43-62.
Na, N. (2016). The economic theory of ‘managerial’capitalism.Springer.
Nduku, M. J. (2015). The Effect of Capital Structure on the Profitability of the Real Estate Firms in Kenya.
Nguyen, L., & Steininger, B. I. (2019). The Impact of Misvaluation on Financing Decisions: Evidence from the Real Estate Investment Trust (REIT) Sector. Available at SSRN 3507164.
Nguyen, N. T. P., Nguyen, L. P., & Dang, H. T. T. (2017). Analyze the determinants of capital structure for Vietnamese real estate listed companies. International Journal of Economics and Financial Issues, 7(4), 270-282.
Nordhaus, W. D. (1969).An economic theory of technological change. The American Economic Review, 59(2), 18-28.
Ogbenjuwa, L., Egbu, C., & Robinson, H. (2018).A strategic approach to real estate financing: challenges & opportunities in real estate financing in Nigeria.
Sanfelici, D., & Halbert, L. (2019). Financial market actors as urban county government policy-makers: The case of real estate investment trusts in Brazil. Urban Geography, 40(1), 83-103.
Schill, M. H. (2016). The impact of the capital markets on real estate law and practice. J. marshall L. rev., 32, 269.
Siniak, N. G., & Marina, N. (2019). Real estate market transparency as an important factor in investment and decision making.
Tang, R. (2019). Real estate crowd funding in China (Doctoral dissertation, Massachusetts Institute of Technology).
Uwayezu, E., & T de Vries, W. (2020). Can In-Kind Compensation for Expropriated Real Property Promote Spatial Justice? A Case Study Analysis of Resettlement in Kigali City, Rwanda. Sustainability, 12(9), 3753.
Uwayezu, E., & Vries, W. T. D. (2020). Access to Affordable Houses for the Low-Income Urban Dwellers in Kigali: Analysis Based on Sale Prices. Land, 9(3), 85.
Warren, C. M. (2018).Global property market update. Property Management.
Wong, P., Higgins, D., & Soemarsono, C. (2018).Australian Housing Market and the Indonesian Foreign Real Estate Investment. In APHRN 2018: Smart and Sustainable Housing Futures (pp. 87-97). University of Hong Kong.
Zhang, D., Cai, J., Liu, J., & Kutan, A. M. (2018). Real estate investments and financial stability: evidence from regional commercial banks in China. The European Journal of Finance, 24(16), 1388-1408.