Effect Of Foreign Inflows On Real Estate Investment In Kenya

Abstract

Foreign inflows contribute to the growth and development of countries. The financial sector plays intermediary roles between savings and investment in various economic units which spans across the selection investment projects and the final users of financial resources. Real estate investment performs a vital role in the economy of Kenya. Over the years, Kenya has experienced increased investments in the real estate sector which is attributed to the quest of owning houses by Kenyans. This study examined the effect of foreign inflow on real estate investment in Kenya. Specifically, it assessed the effect of diaspora remittance, foreign direct investments and portfolio management on real estate investment in Kenya. The study further evaluated the moderating effect of financial development on the relationship between remittance and real estate investment in Kenya. The study was guided by Pure Altruism Theory, Pure Self Interest Theory, Portfolio Theory and Financial Intermediation Theory. The causal research design was used in the study. Mainly, the Auto-regressive Distributed Lag bounds test and the Dynamic Ordinary Least Squares methods were employed. The findings revealed that Foreign Direct Investment Portfolio Investment have significant negative effect on Real Estate investment in Kenya in the short run. Also, the interaction between Financial Development and Foreign Direct Investment was weakly significant. The study concluded that foreign inflows determine Real Estate Investment only in the short run in Kenya. In the long run, their effects on Real Estate Investment wanes. The study also concludes that the moderating effect of Financial Development on the relationship between Foreign Inflows and Real Estate Investment in Kenya is feasible only through the Foreign Direct Investment channel. Therefore, the study recommends that the Government of Kenya looks inward for alternative funding options such as mortgage financing to achieve growth in the real estate sector. The foreign inflows have shown to influence real estate investment only in the short run.