Project – An appraisal of investors confidence in residential estate investment

CHAPTER ONE

1.0   INTRODUCTION

Investment is the laying down of capital in the present to enjoy future benefits or monetary returns, either as a lump sum or in a stream of installments (MCO Real Estate, 2016). It means different things to different sectors. Investment in real estate can be defined as the current input of financial capital into property and any form of improvement on land, in order to redeem future monetary benefits from the asset in question (Barbara & Jing, 2012).

Investments can come in various forms. The various classifications of investment include: real estate; a commodity that entails a building being traded at a certain price, shares; a part ownership of a publicly quoted company, bonds; a document stating a debt payment with interest to the creditor, pension funds; a pool of funds gathered from actively employed individuals and then reinvested by the pension managers, and a host of other investment media. According to a report by National Association of Insurance and Financial Advisors (NAIFA, 2011), the investment pattern in Nigeria can be deemed an intensive one. The level of risk attached to shares and stocks quoted in the Nigerian Stock Exchange has forced investors to carry out deep analysis before investing. In the event that a stock is anticipated to perform well on “the floor”, an investor will likely lay down a large amount of capital seeing as most stocks are currently not performing relatively well on the stock exchange (NAIFA, 2011). Furthermore, a report by Estate Intel (2017) states that the current economic downturn in the country has created a scenario where the risk-prone investor shies away from stocks and bonds due to the unavailability of funds and uncertainty attached to the investment medium. The tendency is for investors to take the safest route and invest in real estate which is tangible and also bears the characteristic of hedging against inflation (increases in value overtime irrespective of inflation) (Estate Intel, 2017).

The performance of the property investment has greatly increased in popularity over recent years and property itself has long fascinated investors. Unlike many other investments, such as shares bonds, property is a tangible asset. Property investment otherwise also called the real estate is also a medium where bundle of rights in landed properties are being exchanged. It is an avenue where transaction in land and property owners, building users, estate agents and lawyers is created. The property market is the sum total of all the smaller and larger markets operating in different types of interest in land (Ajayi 2006). It is therefore the aim of this study to not only appraise the confidence investors and performance have in the Nigerian real estate market, but to also identify the factors which may have caused such confidence levels, and to also come up with probable solutions in the event that investor confidence in the study area is low.

1.1   STATEMENT OF THE PROBLEM

The amount of risk associated with real estate investments can be termed as long-term and also volatile in nature. It is long term due to the fact that real estate can only come into existence after a development is completed. Inherent in these procedures are various forms of risk such as statutory/institutional risk. This comes in the form of planning approval and zoning laws which the subject property must conform-to before further construction can take place. All these inherent forms of risk are deterrents to real estate investments by investors and thus reduce their level of confidence and trust in the real estate sector regardless of the amount of potential derivable from such an investment. While in terms of volatility, the real estate sector tends to be affected gravely due to changes in other external factors. A common problem faced by investors in Nigeria during the course of developing a property is the risk of inflation. This is exclusive of the internal characteristics of a subject property being invested in, as it concerns the value of a loan taken for the actualization of a real estate project. In the event that the initial value of the loan taken by a developer drops overtime due to inflation, the interest rate charged over such a loan will be too high and hence not beneficial to the developer. The Nigerian real estate sector faces a lot of challenges, and its improvement is imminent to not just improving the local and foreign investor’s confidence, but also the Nigerian economy. Regardless of the above mentioned problems, this study will appraise investors’ confidence in residential estate investment in Ombi II of Lafia urban area.

1.2   AIM AND OBJECTIVES

The aim of this study is to appraise the level of investors’ confidence in residential estate investment in Lafia Urban Area, with particular reference to Ombi II.

In attaining the aforementioned aim, this study is set to achieve the following objectives:

1. To identify the predominant types residential properties investments in the study area.
2. To identify investors preference factors for other dominant investments in comparison with residential properties investment.
3. To look at the behaviour/attitude of investors towards real estate in the study area.
4. To examine the level of confidence of investors to real estate investment in Lafia Urban Area.
5. To proffer useful suggestion on how to improve.

1.3   RESEARCH QUESTIONS

This study will aim to answer the following questions:

1. What are the predominant types of residential properties investments in the study area?
2. What are an investor’s preference factors for other dominant investments in comparison with residential properties investments?
3. What is the behaviour/attitude of investors towards the residential properties investment in the study area?
4. How does the level of confidence of investors affect residential properties investment in the study area?

1.4   SCOPE/LIMITATION OF THE STUDY

This study focuses mainly on the various types of investors who invest in residential and other types of investments. Mainly the study focused on the level of confidence and the predominant class of investors in residential properties within the study area.

1.5   SIGNIFICANCE OF THE STUDY

Real estate thrives in Nigeria due to its high demand, which is as a result of the rapid increase in population (NAIFA, 2011). This population includes families, traders and investors that view Nigeria as the commercial hub of not just West Africa but the entire African continent (NAIFA, 2011).

There is a need to have documented information on the performance and current level of confidence of these investors and this research will provide that information and will be beneficial to stakeholders in real estate such as real estate practitioners as it would bring to their awareness the state of local and foreign real estate investments.

It would also benefit the Government so as to enable them determine what sectors of the economy to invest in with priority being given to infrastructural development. It can also enable them determine if foreign investors are making the real estate market unfavourable for indigenes of Nigeria.

As for the academia that would carry out research in this area, there would be data for the researcher and also for those who wish to further this research.

1.6   THE STUDY AREA

The study area is located between latitude 8˚20’N – 8˚38’N and between longitudes 6˚34’E – 7˚30’E. It share boundaries with Nasarawa Eggon and Wamba Local Government Area (L.G.A) in the North, Obi Local Government Area (L.G.A) in the South East, Doma Local Government Area (L.G.A) in the South-West, Kokona Local Government Area (L.G.A) in the West and Plateau state in the East respectively (Figure 1).

The climate exhibited in the area under study shows no difference from that experienced over other parts of the Nasarawa State, which is characterized by a sub-humid climate with two distinct seasons; dry and rainy season (Akwa et al., 2005).

The study area has population of 330,712 according to National Population Commission Lafia (2006). The area falls within the guinea savanna zone characterized by scattered trees and grasses. The geology comprised of the basement complex formation of North Central Nigeria with undulating low lands and network of hills developed on granites, magnetite rocks which are believed to be plutonic in nature but later exposed to the surface by geomorphic processes. (see figure 1, 2, and 3 for maps).

 

1.7   DEFINITION OF TERMS

Investor: This is an individual or group of individuals who presently put in financial capital into an asset, in order to receive returns; monetary or otherwise, from the asset in the future.

Confidence: This is the level of trust an investor has in the future performance of the Nigerian real estate market with respect to the financial benefits that investor will receive from the market.

Investment: An investment is an asset or item that is purchased with the hope that it will generate income or will appreciate in the future.

Real Estate: Real estate is the property, land, buildings, air rights above the land and underground rights below the land. The term real estate means real, or physical, property.

Property: In common law, real property (immovable property) is the combination of interests in land and improvements thereto, and personal property is interest in movable property.

Real Estate Market: This is any form of interaction that exists between a willing buyer and a willing seller of real property, in an arm’s length transaction, after adequate marketing of the property, and after both parties have acted prudently and without compulsion.

Real estate investment: Thisinvolves the purchase, ownership, management, rental and/or sale of real estate for profit. Improvement of realty property as part of a real estate investment strategy is generally considered to be a sub-specialty of real estate investing called real estate development.

 

Project – An appraisal of investors confidence in residential estate investment