THE RELATIONSHIP BETWEEN LEVERAGE RISK AND PERFORMANCE OF SELECTED REAL ESTATE INVESTMENTS IN MERU COUNTY- KENYA

Authors

  • Kenneth Mburugu Kenya Methodist University
  • Dr. Nancy Rintari Kenya Methodist University
  • Fredrick Mutea Kenya Methodist University

DOI:

https://doi.org/10.47941/ijf.659

Keywords:

Financial, investments, leverage, risk, real estates, performance

Abstract

Purpose:  The purpose of this study was to investigate the Influence of leverage risk on performance of selected real estates in Meru County Kenya. 

Methodology: This study employed a descriptive research design. The target population comprised of 390 real estate owners and the sample size was 197 respondents. Stratified random sampling and purposive sampling procedures were used to select the sample size from the target population. Data was analyzed by use of SPSS version 23. Descriptive statistics and inferential statistics such as Regression, and Analysis of variance (ANOVA) were used to present the results in tables and figures.

Results: This study revealed statistically significant relationships between leverage risk and performance of real estate investments.  This study established that Leverage risk had a statistically significant influence on real estate investment performance (r=.686, p<0.01), (f=12.29, p<0.01). However, Real estate investments was not affected by market risk since it had the least influence on its performance.

Unique contribution to theory, policy and practice: The study added value to Investors on necessity to evaluate leverage risk, as well as maintain a well-balanced capital structure when making real estate investment decisions. There is dire need for central bank of Kenya to amend lending rates specifically on mortgages. The study informed policy decision to the ministry of finance & central bank of Kenya on implementing fiscal and monetary policies that create an enabling environment. A further study on determinants of leverage in real estate investments need to be done.

Author Biographies

Kenneth Mburugu, Kenya Methodist University

Postgraduate Student School of Business and Economics

Dr. Nancy Rintari, Kenya Methodist University

Lecturer, School of Business and Economics

Fredrick Mutea, Kenya Methodist University

Lecturer, School of Business and Economics

References

Adesina, J. B., Nwidobie, B. M., & Adesina, O. O. (2015a). Capital Structure and Financial Performance in Nigeria. International Journal of Business and Social Research, 5(2), 21–31. https://doi.org/10.18533/ijbsr.v5i2.710

Adesina, J. B., Nwidobie, B. M., & Adesina, O. O. (2015b). Capital Structure and Financial Performance in Nigeria. International Journal of Business and Social Research, 5(2), 21–31. https://doi.org/10.18533/ijbsr.v5i2.710

Daryanto, W., Samidi, S., & Siregar, D. (2018). The impact of financial liquidity and leverage on financial performance: Evidence from property and real estate enterprises in Indonesia. Management Science Letters, 8, 1345–1352. https://doi.org/10.5267/j.msl.2018.9.005

Feng, Y., & Guo, Y. (2015). The Relationship between Capital Structure and Financial Performance of China’s Real Estate Listed Companies. Journal of Finance and Economics, 3(4), 72–76. https://doi.org/10.12691/jfe-3-4-3

Feng, Z., Ghosh, C., & Sirmans, C. F. (2007). On the Capital Structure of Real Estate Investment Trusts (REITs). The Journal of Real Estate Finance and Economics, 34(1), 81–105. https://doi.org/10.1007/s11146-007-9005-2

Gatauwa, J. M., & Murungi, M. (2020). Infrastructure Development and Real Estate Values in Meru County, Kenya. Research Journal of Finance and Accounting, 6(8), 212.

Iqbal, M. J. (2019). Determinants Of Systematic Risk. The Journal of Commerce, Hailey College of Commerce, University of the Punjab, PAKISTAN 47, 4(1), 10.

Juma, S. (2017, April 24). Real Estate Sector Contributed 8.8 Percent To GDP in 2016. Soko Directory. https://sokodirectory.com/2017/04/real-estate-sector-contributed-8-8-percent-gdp-2016/

Kamweru, E., & Ngui, M. N. M. (2017). Effects Of Interest Rates On The Performance Of Real Estate Industry In Kenya: A Case Of Nairobi County. International Journal of Finance, 2(6), 35–59. https://doi.org/10.47941/ijf.146

Kibunyi, D., Ndiritu, S. W., Carcel, H., & Gil-Alana, L. (2017). Real estate prices in Kenya: Is there a bubble? Journal of Housing and the Built Environment. https://doi.org/10.1007/s10901-017-9541-x

Liu, C. H., Grissom, T. V., & Hartzell, D. J. (n.d.). Superior Real Estate Investment Performance: Enigma or Illusion? A Critical Review of the Literature. Cornell University, School of Hotel Administration Site:, 38.

Mang’ong’o, M. N., Githui, D. T., & Omurwa, M. J. (2018). Ratios as Internal Determinants of Profitability on Real Estate Sector in Kenya: Case of Registered Real Estate Firms. Journal of Finance and Accounting, 2(2), 19–44.

Nasuha, N., Wahid, B., Ahmad, F., Ahmad, B., Aiqal, M., Bin, A., & Aziz, A. (2018). The Determinants of Firm Profitability and Risk on Real Estate Industry. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.3300487

Ndungu, R. W. (2019). Determinants of financial distress in Kenyan Commercial Banks [Thesis, Strathmore University]. http://su-plus.strathmore.edu/handle/11071/6587

Nguyen, V. C., Nguyen, T. N. L., Tran, T. T. P., & Nghiem, T. T. (2019). The impact of financial leverage on the profitability of real estate companies: A study from Vietnam stock exchange. Management Science Letters, 2315–2326. https://doi.org/10.5267/j.msl.2019.7.023

Patel, R. C., & Olsen, R. A. (2018). Financial determinants of systematic risk in real estate investment trusts. Journal of Business Research, 12(4), 481–491. https://doi.org/10.1016/0148-2963(84)90026-2

Rashed Nawaz, Waqar Ahmed, Imran, Sabeela Sabir, Muhammad Arshad, Tayyaba Rani, & Adnan Khan. (2017). Financial Variables and Systematic Risk. Chinese Business Review, 16(2). https://doi.org/10.17265/1537-1506/2017.01.004

Rudin, M., Nurdin, D., & Fattah, V. Y. (2016). The Effect of Liquidity and Leverage on Profitability of Property and Real Estate Company in Indonesian Stock Exchange. International Journal of Social Sciences and Management, 3(4), 300–304. https://doi.org/10.3126/ijssm.v3i4.15964

Voicu, C., & Seiler, M. J. (2013). Understanding Systematic Risk in Real Estate Markets. Journal of Housing Research, 22(2), 165–202. JSTOR.

Wong, W. W., & Reddy, W. (2018). Evaluation of Australian REIT Performance and the Impact of Interest Rates and Leverage. 30.

Zhou, S., & Tewari, D. D. (2019). Shadow financial services and firm performance in South Africa. Cogent Economics & Finance, 7(1). https://doi.org/10.1080/23322039.2019.1603654

Downloads

Published

2021-08-18

How to Cite

Mburugu, K. ., Rintari, D. N. ., & Mutea, F. . (2021). THE RELATIONSHIP BETWEEN LEVERAGE RISK AND PERFORMANCE OF SELECTED REAL ESTATE INVESTMENTS IN MERU COUNTY- KENYA. International Journal of Finance, 6(2), 36–42. https://doi.org/10.47941/ijf.659

Issue

Section

Articles