Effect of Government Regulations on the Relationship between Residential Mortgage Financing Practices and Performance of Real Estate Firms in Kenya

Abstract

The purpose of this study was to examine the effect of government regulations on the relationship between residential mortgage financing practices and the performance of real estate firms in Kenya. Housing is a basic human right as enshrined under the Social pillar in Kenya’s Vision 2030 yet the realization of this fundamental right is an uphill task due to the heavy capital outlay required. Mortgage financing remain one of the most appropriate options for providing funds for housing globally. However, the uptake of residential mortgage financing has been low in Kenya leading to a housing deficit that has attracted proliferation of informal dwellings which call upon the intervention of the government in the real estate industry to help in addressing this challenge. This study tested the null hypotheses that borrower characteristics, mortgage distribution channels, mortgage contract terms, mortgage marketing practices and underwriting criteria have no relationship with performance of the real estate firms in Kenya and the null hypothesis that government regulations does not moderate the relationship between residential mortgage financing practices and performance of real estate firms in Kenya. The study was mainly anchored on resource based view (RBV), configuration, contract and regulation theories. The target population of the study comprised of real estate firms registered with Kenya Property Developers Association (KPDA) while the respondents were 138 real estate managers and finance managers of these firms. The study adopted a census approach. Primary data was collected using a self-administered, semi-structured questionnaire while secondary data was obtained from published sources such as library, Internet and research done by other scholars. The questionnaire was tested for validity and reliability. Questionnaires were administered through drop and pick method for ease of administration and convenience. Analyses were undertaken using a two-phase process that comprised of confirmatory measurement model and confirmatory structural model. Additionally, moderated multiple regression (MMR) analysis was used in comparing ordinary least- squares (OLS) regression model and MMR model. The study found out that borrower characteristics, mortgage distribution channels, mortgage contract terms, mortgage marketing practices were individually significant predictors of performance of real estate firms with mortgage contract terms emerging as the most significant. The results further revealed that government regulations moderated the relationship between residential mortgage financing practices and the performance of real estate firms in Kenya. The study established that by aligning the operations of real estate firms with government regulations helps in creating a strategic fit that position them above their rivals. Overall, the study demonstrated a positive relationship between government regulations and performance of real estate firms in Kenya. The study recommends that real estate firms seeking superior performance should adhere to government regulations which control their operating environment.