APPRAISAL OF INVESTOR CONFIDENCE IN THE NIGERIAN REAL ESTATE SECTOR
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APPRAISAL OF INVESTOR CONFIDENCE IN THE NIGERIAN REAL ESTATE SECTOR
CHAPITRE ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Over the previous four years, the Nigerian real estate sector has grown steadily and consistently, becoming one of the largest non-oil contributors to the nation’s rebased GDP, contributing 8.03% and 11% in 2013 and 2014, respectively (Ikekpeazu, 2004). The market, which is presently valued at about N6.5 trillion, is expected to increase at a 10% annual rate over the next few years.
The following factors have been identified as major growth drivers in the sector: increased inflows of foreign investment (particularly from South Africa, the Middle East, and the United States); increased institutional investment from local companies, including PFAs and Mutual Funds;
a growing population of High Net Worth Individuals; and targeted intervention by the Federal Government in the housing finance sector. This, however, implies that despite the nation’s shrinking economy, many stakeholders and investors are confident in the structure of the Nigeria real estate market (Olotuah, 2000).
Real estate investing entails the profitable purchase, ownership, management, rental, and/or sale of real estate. Real estate development is a sub-specialty of real estate investing that involves improving real estate property as part of a real estate investment plan.
Real estate is a capital-intensive asset with limited liquidity in comparison to other investments (although money can be gained through mortgage leverage) and is highly cash flow dependent (Agbola, 1998).
Real estate becomes a risky investment if these aspects are not effectively understood and controlled by the investor. The fundamental cause of real estate investment failure is that the investor experiences negative cash flow for an extended period of time that is not sustainable, leading them to resell the property at a loss or declare bankruptcy.
Another reason for failure is a related practise known as flipping, where the nature of the investment is generally associated with short-term profit with minimal work.
The availability of adequate capital in real estate investing, which is frequently beyond individual investors’ existing financial resources, is critical to the success of any investment activity. This financial inadequacy naturally drives investors to financial institutions in search of feasible credit advances.
According to Mbanefo (2002), the importance of banks in our economy stems from their monopoly on resources for providing loans for industrial and commercial development. The supply of this loan, however,
includes the danger of repayment default, necessitating the use of substantial, dependable, and appropriate security to insulate the default risk connected with credit operations in banks.
Real estate remains in strong demand, indicating investor confidence, because it serves the needs of the general population. A hotel, commercial office, residential estate, or retail park will continue to do successfully, whether in terms of sales or rents, as long as the product fits the consumer’s needs in terms of location, price, and quality.
In the Nigerian real estate sector, we are beginning to witness green shoots of revival in investor confidence. This is reflected in the number of hotel and leisure, residential, retail, and commercial office transactions that are in the planning or development stages.
Most countries’ real estate markets are not as well organised or efficient as markets for other, more liquid financial vehicles. Individual properties are distinct and not directly interchangeable, posing a significant difficulty to an investor attempting to assess prices and investment opportunities.
As a result, discovering properties to invest in can be time-consuming, and competition among investors to purchase specific properties can be highly varied based on knowledge of availability. In real estate markets, information asymmetries are widespread.
This raises transactional risk while also providing numerous possibilities for investors to acquire properties at low costs. To improve investor confidence, real estate entrepreneurs often employ a number of assessment procedures to determine the value of properties before to acquisition (Agbola, 1998).
An investment rating of a real estate property, which assesses the property’s risk-adjusted returns relative to a completely risk-free asset, determines investor trust in real estate. A property’s investment rating is the return on investment that a risk-free asset would have to provide to be considered as good as the property whose rating is being computed.
The primary drivers for property ratings are dividends (net operational income) and capital gains over a specific holding period, as well as the risks or variances connected with them.
The investment rating of a property is then a transformation of the risk-adjusted averaged return to a single figure that represents the property’s long-term profit potential.
1.2 STATEMENT OF THE PROBLEM
Nigeria’s real estate market has enormous potential for expansion. Until now, awareness of its composition and growth has been relatively confined to its mandatory usage in Nigerian national accounts, without regard for the investor’s involvement. Nigeria is currently experiencing a housing boom, owing mostly to the high demand produced by a growing population.
As of August 2012, Nigeria’s housing shortfall was predicted to be 17 million, giving various investors confidence in the profitability of Nigerian real estate. The researcher’s goal, however, is to present an overview of investor confidence in the Nigerian real estate business.
1.3 OBJECTIVES OF THE STUDY
The following are the study’s objectives:
1. To investigate the level of investor trust in Nigeria’s real estate sector.
2. To identify the variables that can boost investor trust in Nigeria’s real estate sector.
3. To identify the elements that can undermine investor trust in Nigeria’s real estate sector.
1.4 RESEARCH QUESTIONS
1. How confident are investors in the Nigerian real estate sector?
2. What elements can increase investor trust in the Nigerian real estate sector?
3. What factors can undermine investor trust in the Nigerian real estate sector?
1.6 SIGNIFICANCE OF THE STUDY
The following are the study’s implications:
1. The study’s findings will educate the general public on the actions of real estate brokers in Nigeria, highlighting for further investigation elements that can attract additional investors to the sector of the economy.
2. This research will also serve as a resource base for other academics and researchers interested in conducting additional research in this sector in the future, and if implemented, will go so far as to provide new explanations for the topic.
1.7 SCOPE AND LIMITATIONS OF STUDY
The prospects of investors in the Nigerian real estate sector will be covered in this study on the evaluation of investor confidence in the Nigerian real estate sector. It will also discuss the variables that can increase investor trust in Nigeria’s real estate sector.
STUDY LIMITATIONS
Financial constraint- A lack of funds tends to restrict the researcher’s efficiency in locating relevant materials, literature, or information, as well as in the data collection procedure (internet, questionnaire, and interview).
Time constraint- The researcher will conduct this investigation alongside other academic activities. As a result, the amount of time spent on research will be reduced.
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