LOAN FINANCING, LEASE FINANCING AND THE FINANCIAL PERFORMANCE OF REAL ESTATE DEVELOPERS IN NAIROBI COUNTY, KENYA

Kenya's real estate sector contributes between 7% and 10% of the national Gross Domestic Product and has registered a consistent annual growth rate of approximately 6% to 8% over the past decade. Despite this expansion, real estate developers in Nairobi County continue to face significant financial challenges, including high interest rates exceeding 12% per annum, limited access to affordable long-term capital, and an excessive dependence on traditional debt instruments. These constraints have constrained operational flexibility, eroded profitability, and exposed developers to systemic financial shocks. This study examined the impact of loan financing and the influence of lease financing on the financial performance of real estate developers in Nairobi County, Kenya, with financial performance operationalised through Return on Assets (ROA) and Return on Equity (ROE). Anchored on Agency Theory and the Resource-Based View (RBV) Theory, the research adopted an explanatory research design and a cross-sectional survey approach, targeting 470 real estate developers registered by the Estate Agents Registration Board. A sample of 141 developers was selected through simple random sampling, and structured questionnaires were complemented by secondary data drawn from financial statements. The pilot study was conducted in Kiambu County, with reliability confirmed through Cronbach's Alpha values of 0.933 for loan financing, 0.897 for lease financing, and 0.964 for financial performance. Data were analysed using SPSS Version 27 through descriptive statistics, Pearson correlation, and multiple linear regression. Findings revealed that loan financing (r = 0.536; β = 0.31, p = 0.001) and lease financing (r = 0.601; β = 0.42, p = 0.000) both exerted positive and statistically significant effects on financial performance, with lease financing emerging as the stronger predictor. Both null hypotheses were rejected. The study concludes that structured loan facilities and well-negotiated lease agreements substantially enhance ROA and ROE among Nairobi real estate developers, and recommends a balanced financing portfolio supported by enabling regulation.