EFFECT OF PRIVATE ASSET FINANCING LOANS ON FINANCIAL PERFORMANCE OF REAL ESTATE INVESTMENT FIRMS IN NAKURU TOWN, KENYA

Abstract

There has been an ever-growing demand for housing in Kenya. Though this may spell booming business for real estate financing investments, this has not been the case, at least in relation to financial performance. The study examined the effect of private asset financing loans on financial performance of real estate investment firms specifically in Nakuru town, Kenya. In particular, the study analyzed the effect of uptake of private asset financing loans, interest rates, loan processing time, and asset-to-loan ration on financial performance of the said entities. The study was guided by several pertinent theories. The study population consisted of 80 real estate developers (real estate investment firms). Due to the relatively small size of the study population, a census design was adopted. A structured questionnaire was used to facilitate data collection. The instrument was pilot tested in order to determine both its validity and reliability before it was used to aid in collection of data for the main study. The Statistical Package for Social Sciences Version 24.0 programme was used in data analysis. Data analysis involved both descriptive and inferential statistics. The results of the analysis were presented in tables. The research hypotheses were tested at 95% confidence level. It was established that increasing the uptake of private asset (β0 = 0.010), interest rates (β0 = -0.195), and loan processing time (β0 = -0.132) marginally affected financial performance of real estate investment firms in Nakuru town. However, asset-to-loan ratio was found to substantively influence financial performance of the stated firms (β0 = 0.327). The second and fourth null hypotheses were rejected (p < 0.05). However, the first and third null hypotheses failed to be rejected (p > 0.05). It was concluded that increased uptake of these loans was bound to result in improvement financial performance. The interest rates were concluded to marginally affect financial performance of the aforestated firms. Increasing loan processing time was inferred to result in a decline in financial performance of the aforementioned companies. The study also concluded that asset-to-loan ratio significantly affected financial performance of real estate investment firms in Nakuru town. It was concluded that a substantive proportion of financial performance of the stated firms could be attributed to private asset financing loans, where the ratio of assets to loans was concluded to be the most important factor. The study recommended that all real estate investment firms should ensure that there is continuous uptake of private asset financing loans. It is advisable for regulations to be put in place in respect of interest rates charged by these firms. It is recommended for reduction in the time taken to process private asset financing loans. It is recommended that the real estate investment firms to minimize their reliance on the assets already owned by the borrowers as one of the major conditions for extending applied loans to them.