RISK MANAGEMENT AND ITS EFFECT ON PERFORMANCE OF COMMERCIAL REAL ESTATE ENTREPRENEURIAL INVESTMENTS IN KENYA

Abstract

This study was set to investigate risk management and its effect on the performance of commercial real estate entrepreneurial investments in Kenya. Objectives of the study include determination of how technical risk management, financial/economic risk management, market risk management, environmental risk management, political risk management and operational risk management affect the performance of commercial real estate entrepreneurial investments in Kenya. The study also sought to find the moderating effect of the adoption of risk management procedure on the performance of commercial real estate entrepreneurial investments. The research was based on and guided by four theories of entrepreneurship and risk management, namely; Strategic Planning Theory, Risk and Uncertainty-Bearing Theory, Enterprise Risk Management Theory and Contingency Theory. The study adopted a descriptive survey design having a quantitative approach. The target population for this study was 9,320 real estate entrepreneurs comprised of 884, 95, 320 and 8,021 sourced from SoftKenya directory, Kenya Developers Association, Estate Agent Registration Board and National Construction Authority respectively having their registered offices in Nairobi, Nakuru, Kisumu and Eldoret. A sample size of 384 participants was selected and using a stratified random sampling procedure, participants that participated in the study were identified and later served with online questionnaires using their emails. The collected data was analysed descriptively and inferentially using frequency distribution – mean and standard deviation, Chi-square, Pearson’s Correlation and multiple linear regression analysis with the aid of the Statistical Package for Social Sciences (SPSS), version 20.0. The significance of each risk factor within the categories was examined using Risk Significant Index method. Out of 26 risk factors, inadequate site investigation, delayed payments to construction teams, improper market feasibility study, corruption and bribery, incomplete environmental analysis and extended voids/low uptake after completion were found to be the most critical risk factors in each risk category. The study established that technical risk management, financial/economic risk management, environmental risk management and operational risk management significantly affected performance while adoption of risk management procedure by the real estate entrepreneurs was found to have a significant moderating effect on the performance of commercial real estate entrepreneurial investments. Market risk management and political/legal risk management were found not to significantly affect the performance. A small percentage of the respondents use systematic risk management procedure while most of the entrepreneurs depend on judgment, intuition and general experience obtained in the real estate industry in managing their risks. This is attributed to lack of information on the type of risks and their criticality on one side and lack of adequate knowledge on risk management among the entrepreneurs. The study recommends concern authorities to ensure that real estate entrepreneurs undertake adequate site investigation, adhere to environmental requirements, and establish a one-stop-shop for document approvals in each County to minimise bureaucracy and corruption. The government should enhance policy issues that will help in increased adoption of risk management procedure and increase knowledge on real estate entrepreneurial investments risks and management amongst real estate entrepreneurs. The policy framework should include as a prerequisite submission of a risk management plan and staff training in risk management in any commercial real estate entrepreneurial investment approval. Keywords: Entrepreneurship, risk management, risk factors, performance, commercial real estate entrepreneurial investments.