Effect of Real Estate Investment Management on Financial Performance of Investment Banks in Nairobi County, Kenya

Abstract

The financial performance of investment banks has been on the rise globally. This is due to incorporation of diverse portfolios in various sectors such as real estate, manufacturing, and mining among others. Nevertheless, there has been a low profitability in the Kenyan investment banks. This low profitability has been partly caused by decline in value of investments made through banks by investors. This study investigated the effect of real estate investment management on financial performance of investment banks in Nairobi County, Kenya. Specifically, it examined the effect of rental property investment management, real estate mutual funds management, real estate investment trusts management, and real estate investment bonds management on financial performance of investment banks in Nairobi County, Kenya. The three theories that guided the study were Modern Portfolio Theory, Duesenberry’s Accelerator Theory of Investment and segmented markets theory. The study used descriptive research design. The target population was 22 investment banks in Nairobi Kenya whose respondents were 657. Simple random sampling method was used to obtain a sample 30 percent of all categories respondents resulting to 204 respondents. This study used a questionnaire and secondary data collection form to gather data. The research conducted a pretest at Kenya Commercial Bank and Consolidated bank in Meru County which was 10 percent of the sampled population of the study. Validity was measured through three types which were content, criterion and face validity. It analyzed both quantitative and qualitative data collected. Under the quantitative data, the study analysis provided descriptive statistics such as frequencies, percentages and mean. Inferential analysis generated included model summary to test the level of effect, analysis of variance to test hypothesis and regression coefficients to test the study’s model. It was found out that there were few policies in place to ensure that investment banks made commission payments to various involved parties in a short-duration of time; Investment officers in the bank also lacked in depth knowledge on what real estate equity funds or how they worked; The available information provided by the bank through the brochures and their websites was so shallow and did not provide details such as rules and regulations of investments, income patterns for a specific time and hence did not help much. The study concluded that real estate investments had an effect on financial performance of investment banks in Nairobi County. The study recommends that banks’ management should introduce policies that would give precise details on what the expected turn-around for allocation of returns would be to the investor’s accounts. In addition, the bank management should provide orientation training programs to investors on what and where exactly they should invest in as far as real estate investing is concerned