EFFECTS OF MACROECONOMIC FUNDAMENTALS ON REAL ESTATE INVESTMENT TRUST SCHEME (REITS) RETURNS: THE KENYA EXPERIENCE

Abstract

This study examined the nexus between volatilities in macroeconomic variables and real Estate investment trust scheme (REITs) returns in Kenya within the period 2013-2022.The specific objectives of the study were to determine the relationship between credit to private sector; gross domestic product (GDP); inflation rate (IFR); volatility in interest rates (VIR); exchange rate fluctuation (EXRF); and money supply (MSUP) fluctuation; and stock returns of REITs in Kenya. To examine the cause-effect relationships between the dependent variable and independent variables, the study employed the panel fixed and random effect regression technique to analyse panel data set obtained from IdRatios Nigeria, compiled from the relevant statistical records including the selected stock exchange fact books and concerned firms’ annual financial reports for the period. The findings reveal that; GDP growth (GDPG) and exchange rate (EXRT) had a significant positive effect; whilecredit to the private sector (CRPS, inflation rate (INFR), interest rate (INTR) and money supply (MSUPY) did not have a significant effect on REITS returns Kenya economy.  The study concludes that, unlike in more developed markets, where interest rates play a crucial role in asset returns, other factors especially GDP growth rate and exchange rate had more influence in shaping  REITs performance in Kenya as an emerging market. The study strongly recommends, among others, that the Government of Kenya and private policy-makers prioritize economic policies that promote sustainable economic growth as this indirectly supports the real estate and REITs markets in the country.