The Critical Success Factors For Mortgage Market Development In Kenya

Abstract

This study sought to identify the critical success factors for mortgage market development in Kenya. The study also examined the influence of macroeconomic variables and capital markets deepening variables on mortgage market growth. The theories which underpinned the study included the lien theory and title theory, theory of mortgage collateral, growth-led finance hypothesis and theory of financial intermediation. The mortgage market in Kenya exhibits a slack in development, when compared with other nations and with its overall potential. As at December 2012, the potential of the market was estimated at KES 800 billion while the actual mortgage loans stood at KES 61 billion, showing a market operating at 8% of its potential. The study therefore sought to unlock the success formula for the development of the mortgage market in Kenya. A census approach was used whereby a questionnaire was administered to all the 37 commercial banks in the business of mortgage lend ing as at 31st December 2013 and three government agencies/regulators that interact with the mortgage' market. Panel data was also collected on mortgage lending, macroeconomic variables and capital markets deepening variables for the period 1984 to 2014. peA. was used to identify the critical success factors for the development of the mongage market in Kenya as growth in the insurance industry, low treasury bills rates, low inflation, growth in pension assets, low treasury bonds rate, growth in national financial inclusion and secondary mortgage market at the Nairobi Securities Exchange. These were the factors with factor loadings of more than 0.5 hence highly significant and critical. After carrying out the tests of regression assumptions, stepwise regression was used in analyzing the panel data. It was found that insurance assets, pension assets, GDP per capita and informal sector employment have a positive influence on mortgage growth, measured through mortgage loans. Equity market capitalization to GDP and formal sector employment had a negative influence on mortgage growth. Of interest in Kenya is that the informal sector employment has a positive influence of mortgage growth. This thesis recommends further research on the positive relationship between informal sector employment and mortgage loans. It further recommends support for the pension sub-sector, the setting up of a secondary mortgage market, a review of the restrictive lending criteria by the lenders and the development of more capital markets securities to enable mobilization of funds by the mortgage lenders.