MANAGING RURAL DEVELOPMENT THROUGH INDUSTRIALISATION
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MANAGING RURAL DEVELOPMENT THROUGH INDUSTRIALISATION
CHAPITRE ONE
1.0 INTRODUCTION
Long-term investors’ principal financial concern is the impact of inflation on the value of their holdings. While actual and predicted inflation have decreased significantly since the early 1980s, long-term investors are nevertheless concerned about future increases. According to Ibbotson and Siegael (1995), real estate rewards investors for inflation risk.
When real estate is added to a mixed-asset portfolio, the inflation risk of the expanded portfolio (expanding real estate) is significantly lower than that of the original portfolio. In recent years, we have seen the incidence of inflation decline to low levels and rather static property markets,
which has resulted in modest, or no, growth in property values. There are numerous advantages to investing in property in a low inflation climate, as well as specific risks to investing in a high inflation environment.
Two elements in particular hold the key to understanding the influence of inflation on property values. For starters, real estate provides a buffer against inflation and overvaluation.
Furthermore, boosting the purchasing power of capital by increasing its value ahead of the rate of inflation; any change in value for a given period above or below the rate of inflation is referred to as the “real” growth rate. J. Micjeal Parkin (1975) Kwara housing prices have historically climbed at a compound annual rate of roughly 10%.
During the same period, inflation averaged roughly 7% per year, but growth above the inflation rate, which increases the purchasing power of our capital and thus our “real” wealth, averaged around 3% each year. If inflation is 12% per year and prices rise by 15%,
resulting in a 3% actual increase, we can conclude that the property market is thriving. Ola and Chris (2001) Why, therefore, should they take a negative stance when inflation is 2% and values are up 5%, giving us a 3% real increase? The end outcome is nearly identical.
The second essential to understanding the influence of inflation on property values is to consider the wealth of homeowners, as housing is currently the greatest component of Nigerian people’ investment portfolios. Following the 2009 stock market crash and historically low mortgage rates,
Residential real estate investment has increased. This rise, together with rising property prices, increased household wealth in real estate from $6.6 trillion in 2000 to $10.5 trillion in the second quarter of 2005, a more than 58 percent increase. During the same time period, household
Corporate equity wealth has lost a quarter of its worth, falling from $8 trillion to $6 trillion.
Housing price bubbles occur when home prices rise faster than the local inflation rate, particularly the inflation rate for construction supplies and labour. Higher housing prices in such cases often reflect increased demand.Ola and Chris (2001)
Inflation is a relatively new phenomenon for global economic markets, as there was minimal upward pressure on prices for much of the pre-twentieth century. These constrain governments’ ability. Inflation occurs when the demand for goods and services in the economy exceeds the supply (Hall, 1982).
Its reasons could include the private sector and government spending more than their receipts, or output deficits. Price increases could also be caused by increases in production costs. Price increases in imported raw commodities, for example, will produce inflation if not managed.
Whatever the initial cause, inflation will not last until the money supply is increased consistently. Inflation is a monetary phenomenon in this situation. But how does inflation affect property values?
The real estate market is distorted by inflation. It is detrimental to retirees and those living on a fixed income. When prices rise, these consumers are unable to purchase as much as they could earlier.
This discourages saving because the money is worth more now than it will be later. This anticipation reduces the need for the economy to save a specific amount of money in order to fund investments, which enhances economic growth.
1.1 STATEMENT OF THE PROBLEM
Inflation is one of the issues that any urban region in the world has when it comes to property values. The first is increasing costs, such as higher construction labour pay, higher building material costs, and higher land prices.
When the prices of new and old buildings are compared, new houses are on average more expensive than old houses, and the price difference is largely due to greater construction labour and material expenses.
Inflation has had an impact on property prices in terms of rent. A well-known American economist, Irving Fisher (1998), proposed a theory concerning the relationship between interest rates and inflation rates that can be applied to property market rentals.
According to Fisher, when lenders lend money, they evaluate the predicted inflation rate during the loan’s life and add that rate to the interest rate they charge. If lenders wish to charge 2% interest and estimate a 3% inflation rate, they charge 5% interest on the loan.
A similar mechanism occurs in home markets. When landlords rent out housing units, they take into account both recent and predicted inflation rates during the life of the rental contract. They raise rents to account for inflationary pressures.
Higher rents translate into higher property prices since a home’s price is equivalent to the present value of future streams of actual or imputed rents (gross rentals minus maintenance costs, taxes, depreciation, and so on). As a result, rents rise as a result of inflation.
1.2 RESEARCH QUESTIONS
In order to have a thorough understanding of the influence of inflation on property values in the research region. The following issues must be addressed properly:
1.What kinds of properties are in the research area?
2.What are the different types of inflation and what generates them?
2. What effect does inflation have on property values?
1.3 PURPOSE AND OBJECTIVES
The purpose of this research is to look into the effect of inflation on property values in Ilorin, Kwara State. To that purpose, the research will concentrate on the following specific goals:
1. Recognise the various types of qualities in the research area
2.Identifying the many forms and causes of inflation
3. To investigate the effects of inflation on property values.
4. To suggest possible remedies to the situation.
1.4 JUSTIFICATION OF THE STUDY
Glenn R. Mueller (1993) investigates real estate performance in the United States during and after low inflation eras. The findings indicate that real estate does provide an inflation hedge.
Second, real estate returns are divided into key property type categories (office and industrial) to see if there are any property type disparities. There is a significant distinction between inflation hedging and other types of hedging.
The efficiency of commercial and industrial properties. Third, the industrial are examined further in terms of vacancy rates in the two property categories. High vacancy rates indicate a structural imbalance in the office market.
As a result, the relative impact of vacancy rates on office and industrial property performance is investigated and discovered to be an important component in explaining
returns, influencing the parameters of inflation hedging.
Anari and Kolari (2002) investigated the long-run impact of inflation on homeowner equity in South Africa by examining the link between house prices and non-housing goods and services prices. This methodological deviation is motivated by two factors:
(i) Even when the entire return on housing is negative, it is completely represented in house prices.
cannot be correctly assessed, and (ii) valuable long-run information can be captured by utilising prices rather than returns, because differentiating home prices and non-housing CPI results in a loss of long-run information contained in the series,
Furthermore, unlike earlier studies, we omit housing expenses from our measure of the consumer price index of goods and services to prevent any bias in calculating how inflation affects housing prices.
A well-known American economist, Irving Fisher (1998), proposed a theory concerning the relationship between interest rates and inflation rates that can be applied to property market rentals.
Property price inflation hedging qualities have been studied in both developed and developing countries: Brown (1990), Canada (Newell, 1995), and New Zealand
(Newell and Boyd, 1995) as well as Switzerland (Hoesli, 1994). The goal of this research is to look at how inflation affects property values. Unlike past studies, such an analysis has never been performed in Kwara State, which is where the study’s novelty resides.
1.5 SCOPE OF THE STUDY
A study of the effect of inflation on rental values that will address all concerns connected to the effect, solutions, and strategies used to reduce its influence on the population in the study area. It
will include residential, industrial, and commercial structures.
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