Determinants of developers pricing for residential real estate in Nairobi Metropolitan Area

Abstract

Real estate prices in the major developed markets have been increasing, sometimes dramatically, over the last decade in both nominal and real terms. This study seeks analyze the determinants of developers pricing for residential real estate in Nairobi Metropolitan Area. It was guided by the following specific objectives; to assess the effects of cost of land on price for residential real estate in Nairobi Metropolitan Area, to analyze the influence of property size on price for residential real estate in the study area, to investigate the influence of location on price for residential real estate in Nairobi Metropolitan Area and to assess the effects of cost of development finance on price for residential real estate in Nairobi Metropolitan Area. It is guided by a number of theories including The Trade Off Theory of Capital Expenditure, Real Estate Market Theory and Hedonic Model of Pricing. This study adopted an cross-sectional research design. The population in this study comprised of the employees or practitioners of the developers and mainly those in charge of pricing in various real estate development firms operating within the metropolis. This researcher employed a census survey, which means all the 75 developers were the respondents for the study. Data used was both from primary and secondary sources. Primary source data was from the firms and institutions with structured questionnaires. Collected and organized was processed to make it useful, that is to turn it into information. The data was analyzed using descriptive and inductive statistics with the use of statistical software MINTAB version 14. Descriptive statistics included measures of central tendency of mean, frequency, standard deviation and percentile. Also used were measures of dispersion presented in tables. A straight-line predictor model was developed. The study achieved 83% response from the population with majority having been in the industry for more than 10 years (42%). On the development portfolio, 48% had their portfolio spent of between Kshs. 501 million to 1 Billion. Cost land, location, cost of finance and zoning regulations explain 41% of variation in residential price index while 59% is accounted for by the other factors considered in the study. It concluded that there is need to strategically control land price through proper valuation methodology and proactive zoning by relevant authorities. Need for infrastructure development, utilities and social amenities and also mechanism for access to affordable credit for both the end user and the developer.