Loan Uptake and Return on Investment in Commercial Real Estate in Kenya: A Case of Kenya Property Developers Association Premium Members

Abstract

Real estate commercial environment has guided financial organizations and property developers to examine various financing options given the imperative role that financial markets and developers play in the performance of the real estate sector. The objective of this study was to establish the effect of loan uptake on return on investment in commercial real estate of property developers registered as premium members by Kenya Property Developers Association. The study was anchored on Financial Intermediation Theory and Profit Maximization Theory. The population of interest in the study was made up of registered property developers with Kenya Property Developers Association. The research employed secondary sources to collect data. Information that was relied on included the data from published and audited annual reports of the target group. This study employed a correlational research design and utilized panel data from 2017 to 2021, yielding 30 observations. Data were collected from audited reports deemed reliable and valid and tested for stationarity by Levin, Lin, Chu unit root test. Data were analysed using the ordinary least squares approach at a 0.05 level of significance. Data analysis was done with the help of Eviews and presented in tables. The research findings were that loan uptake has a negative significant effect (β = -0.0099, p = 0.0391) on return on investment in commercial real estate. As the frequency of loan uptake increases, the return on investment tends to decrease. The study concludes that frequent loan uptake reduces the return on investment due to the added cost of borrowing. This research study recommends that awareness be created of the need to use other financing options that are cheaper in the long run. This study contributes to the body of knowledge by providing the link between loan uptake and returns on investment in commercial real estate in Kenya.