Effect Of Real Estate Investment Trusts Characteristics On Uptake By Real Estate Developers In Nairobi, Kenya

Abstract

Kenyan real estate sector has been vibrant for the past decade with the market having resilience to the competitive international property markets. The real estate industry is one of the main contributors to the country’s GDP; however, it faces barriers that limit its expansion, like illiquidity and financial insufficiency. Real Estate Investment Trusts were introduced in Kenya as alternative financial instruments to unlock the value and promote the growth of the real estate sector. The main objective of this study was to determine the effect of Real Estate Investment Trusts (REITs) characteristics on their uptake by real estate developers in Nairobi Kenya. Specifically, the study sought to determine the effect of the regulatory framework on the uptake of REITs by real estate developers in Nairobi Kenya, to establish the effect of the operational structure on the uptake of REITs by real estate developers in Nairobi Kenya and to ascertain the effect of REIT income structure on the uptake of REITs by real estate developers in Nairobi in Kenya. The study population comprised of Real Estate Development firms based in Nairobi and currently registered with the Kenya Property Developers Association. As such a census approach was employed in order to include all the 67 firms with the respondents being the top management officials. The study used primary data which was collected using a questionnaire as the research instrument. Quantitative analysis (descriptive statistics) techniques were used to analyze the collected data. This was analyzed by use of statistical package for social sciences (SPSS) and will be analyzed through the use of descriptive statistics which include frequencies, percentages, standard deviation and arithmetic mean. Also, the qualitative data from the open ended questions was analyzed using content analysis because the focus was on interpretation of the results rather than quantification. The analyzed data was then represented in tables. The study found that when combined, the three characteristics studied, namely, REITs Income Structure, Regulatory Framework and Operational Framework have a positive and significant effect on REITs uptake. The study concluded that REITs Income Structure, Regulatory Framework and Operational Framework have positive and significant effect on the uptake of REITs in Kenya. Individually, regulatory framework, operational framework and income framework had a positive influence on uptake of REITs. This study shows that to enhance the REIT integration and uptake in the real estate sector, it paramount to have an appropriate and functional regulatory framework. Further, having an effective operational framework will lead to improved uptake and overall performance of REITs. The study also recommended that investors establishing REIT firms ought to consider the preference of the target market in reference to income inclinations. The income differences between a Development REIT and an Income REIT affect the uptake of the REITs. Stakeholders seeking to improve REIT integration should collectively consider the three characteristics namely; REITs income structure, regulatory framework and operational framework since they have a positive and significant effect on REITs uptake. Having a befitting legal framework, efficient operational framework matching the income preference of investors to the market will significantly improve uptake of REITs. Further study was recommended on other characteristics affecting REIT uptake not included in this study.