Effects of Market Approach to the Valuation on the Financial Performance of Real Estate Investments in the Western Region, Kenya

Abstract

The main aim of this study was to examine the effect of the market approach to the valuation on the financial performance of real estate management investments in Western region, Kenya. The study was guided by Market Efficient Theory. The study employed a correlational research design. The target population of the study consisted of 52 registered real estate agents within the western Kenya region. The study adopted a census technique to gather all the required data from the existing population. Primary data were collected through structured questionnaires, and secondary data schedules were used to gather secondary data for analysis. Pretesting of survey instruments was conducted as an effort to ensure that there was both content validity and reliability. Both descriptive and inferential statistics were employed for data analysis. From the study results, market-based explained 57.2% (R2=0.572, p=0.000) of variance in the financial performance of real estate investments. The regression coefficient revealed (β=1.019, P=0.000), implying that a unit increase in the market-based valuation approach would significantly increase the financial performance by 1.019 units. Therefore, the null hypothesis was rejected. The study, therefore, concluded that market-based valuation influences the financial performance of real estate management investments in Western Kenya. The study recommended that evaluators should take caution while employing a market approach as either a primary or secondary approach to valuing a business. One of the notable issues with the market approach is that price may not always be a good indicator of value. Price may be influenced by uneven negotiating skills, the difference in information available, the compulsion to act, payment terms, and financial strengths.