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Impact of Global Financial Crisis on Real Estate Market in Kenya

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Impact of Global Financial Crisis on Real Estate Market in Kenya
IMPACT OF 2007-2008 GLOBAL FINANCIAL CRISIS ON KENYA’S REAL ESTATE MARKET; A CASE STUDY OF NAIROBI
CHAPTER 1: INTRODUCTION
1.1 Background Real estate sector is one of the critical pillars in a country’s economic growth and development. Property makes up 5.3% of Kenya’s GDP and has shown positive growth since 2001 (Keeler, 2009). It spurs investment in both Formal and informal sectors. The sector provides employment to a big percentage of Kenyans in mortgage companies, consultant firms, construction firms, and brokerage firms. Real Estate refers to fixed real property such as land, buildings, minerals etc. It includes piece of land, the air above it, the ground below it, any buildings or structures on it and its natural assets (Brueggeman W. & Fisher J., 2008). Real estate market is an over the counter market that deals with buy and sell of real estate, financing for real estate acquisition and renting of office spaces, apartments, houses and land. It is also concerned with leases. The situation of real estate market is determined by fundamental variables of the market. These variables are: (1) House prices, house inventories and sales of new and old houses (2) rents, and vacancy rates (3) mortgage amounts, mortgage Interest rates and mortgage default rates. The term financial crisis is applied to a broad variety of situation in which some financial institutions or assets loose a large part of their value, thus causing an economic meltdown (Read, 1959). It is a collapse of the world financial system, where there is a widespread failure of financial institutions or freezing up of capital markets that can substantially reduce the supply of capital to the real economy (Acharya V., Philippon T., Richardson M., and Roubini N., 2009). The United States of America recently experienced this crises; “The global financial crises of 2007-2009.” There is almost universal agreement that the fundamental cause of the crisis was the combination of a



References: Acharya V. et al. (2009). The Financial Crisis of 2007-2009: Causes and Remedies. Archarya, V. V., & Richardson, M. (2009). Restoring financial stability: How to       repair a            failed system. New York: Wiley Finance. Barro, R. J. (February,  2009). Stock-Market crashes and depressions.     NBER Working Paper No.14760. Bartlett, D. (April 2, 2008). Fallout of the global financial crisis. Brenner, R. (2006). The economics of global turbulence: The advanced capitalist economies            from long boom to long downturn, 1945-2005. London: Verso. Brueggeman W., & Fisher J. (2008). Real estate finance and investments. New York, NY:             McGraw-Hill. Brunnermeier, M. K. (2009). Deciphering the liquidity and credit crunch 2007–2008.            Journal of Economic Perspectives, 23, 77–100. Carmen, R. M., & Rogoff, K. S. (February 5, 2008). Is the 2007 U.S. sub-prime  financial             crisis so different? An international historical comparison.         DeBoer, D., (n.d.) DiMaggio, P., & Powell, W. (1983). The iron cage revisited: Institutional isomorphism and            collective rationality in organizational fields.  American Sociological Review, Vol. 48,            pp. 147-60. Financial Services Authority. (March, 2009). The turner review: A regulatory response to            the global banking crisis. Hyun-Soo, P. (2008). Future direction of the global            financial crisis. Keeler .R. (23 November 2009). Kenya 's property market: Attractive investment prospects            despite economic slowdown. Ratio Magazine. Kilonzo, S. (November 14, 2008). The global financial crisis: Its impact on Kenya and            possible strategies to mitigate the effects. Matt (Feb 18, 2010).What are The Effects of Financial Crisis on Real Estate Markets? All           about economics on the web. Nicholson, R., Lenssen, N., & Blackmore, K. (2008). Impact of the financial crisis on            technology spending in the utility industry. Property Kenya. (July 31, 2005). Kenyan real estate boom: The truth!   Rasmus, J Soddy, F. (1926). Wealth, virtual wealth and debt. New York, NY: E.P. Dutton Taleb, N The Hass Consult Property Price Index. (2009). Property sale prices stabilize, as asking            prices correct to lower level.  Ullah, S., Malik, I Wong, L. (2009). The crisis: A return to political economy? Critical perspectives on            international business. Vol. 5 Nos 1/2, pp. 56-77.        Yılmaz, K

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