COMPARATIVE
ANALYSIS OF RENTAL VARIATION IN RESIDENTIAL AND COMMERCIAL PROPERTIES IN
NIGERIA
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND TO THE STUDY
The
study of rental variation of real estate investment, whether residential or
commercial, is very important at this time when emphasis is on investment
performance analysis in many parts of the world. This is even more important in
Nigeria where only few studies have been carried out on the rental variation in
residential and commercial property achieved by property investment. Moreover
the impact of the ongoing changes in the global and local economy on the value
of real estate investment is serving to highlight the need for its careful
consideration in the investment decision making process (Palmquist, 1980).
Since
1990s, the demand for commercial outlets has risen astronomically in most urban
centers in the country. This is as a result of the economic recession which
compelled the unemployed and public servants to explore trading activities in
addition to their normal jobs. The investors’ reaction to this development has
been to increase the number of commercial outlets at the expense of residential
property developments. Therefore in many towns and cities of Nigeria, open
spaces within the vicinity of public institutions have been irrationally developed
to accommodate shops and other retail outlets. The situation is further
compounded with the perceived notion among Nigerian property investors that
commercial property performs better than residential property investment
(Smith, 1986). However, the investors can no longer base their decision on
intuitive grasp of the market which Ajayi and Fabiyi (1984) considered
inadequate for success in property ventures.
The central theme of this study therefore
is to examine the rental variation of residential and commercial property investments
in the study area. This will provide for better investment decision and risk management
for real estate investors in Nigeria.
Commercial
properties are properties generally occupied for the purpose of carrying on a
trade or profession in the expectation of realizing profit. They comprise
mainly of shops, offices, showroom among others and they command the highest
rent out of the other types of properties uses. Rent provides the basis of
value for landed property and the trends in Land values are of significance in
the prediction and determination of income from real property. Also, the income
realizable from real estate is required in evaluating the viability of
projects. A number of factors combine together in determining changes which
property values undergo which are of great concern to the Estate managers and
valuer.
1.2 STATEMENT OF THE PROBLEM
The issue of fair valuation of residential and
commercial real estate properties has been a major challenge in Nigeria.
Indeed, not much has been done in the area of valuing residential housing units
and commercial/business complex in the economy.
Nevertheless, in recent times, the literature on
real estate has seen a number of techniques and models developed in a bid to
achieve efficient valuation of residential houses. The use of artificial neural
networks has been the most popular and recent in this regards. In the advanced
economies, the use of artificial neural networks is now predominant in several
fields including tax assessment, medical diagnosis, bank risk analysis, stock
analysis & control, traffic control, and real estate valuation etc (Moral –
Esperanza, 2004).
In Nigeria, unlike in many other economies, the use
of artificial neural networks (ANNs) in actual valuation of housing units has
not been done (Eriki & Udegbunam, 2008). It is against this background,
that this study examines the fairness or otherwise, of the price fixing
mechanism for residential and commercial properties in Nigeria.
1.3 OBJECTIVES OF THE STUDY
The
following are the objectives of this study:
1. To
examine the rental variation in residential and commercial properties in Nigeria.
2. To
analyze the factors that influences the value of residential and commercial
properties in Nigeria.
3. To
determine the reasons for rental variation in residential and commercial
properties in Nigeria.
1.4 RESEARCH QUESTIONS
1. What
is the rental variation in residential and commercial properties in Nigeria?
2. What
are the factors that influence the value of residential and commercial
properties in Nigeria?
3. What
are the reasons for rental variation in residential and commercial properties
in Nigeria?
1.5 HYPOTHESIS
HO:
There is no variation in the rental value of residential and commercial
properties in Nigeria.
HA:
There is variation in the rental value of residential and commercial properties
in Nigeria.
1.6 SIGNIFICANCE OF THE STUDY
The
following are the significance of this study
1. The
findings from this study will enlighten the general public on the current value
of residential and commercial properties in Nigeria. It will also educate on
the factors that enhanced rental variation in residential and commercial
properties. It will further educate on the differences between the real estate
investments thereby acting as a guide for decision making.
2. This
research will also serve as a resource base to other scholars and researchers
interested in carrying out further research in this field subsequently, if
applied will go to an extent to provide new explanation to the topic.
1.7 SCOPE/LIMITATIONS OF THE STUDY
This
study on the comparative analysis of rental variation in residential and
commercial properties in Nigeria will cover the present value of residential
and commercial properties in Nigeria which will form the basis for comparison.
LIMITATION OF STUDY
Financial constraint– Insufficient fund tends to impede the
efficiency of the researcher in sourcing for the relevant materials, literature
or information and in the process of data collection (internet, questionnaire
and interview).
Time constraint– The researcher will
simultaneously engage in this study with other academic work. This consequently
will cut down on the time devoted for the research work.
REFERENCES
Ajayi, C.A and
Fabiyi Y.L (1984). “A critique of property investment feasibility and Viability
appraisal reporting in Nigeria”. Quarterly
journal of administration April/July,
161-169
Eriki PO,
Udegbunam RI (2008). Application of neural network in evaluating prices of
housing units in Nigeria: A Preliminary investigation. J. of artificial Intell.
1(1): 21-27.
Palmquist RB
(1980). Alternative techniques for developing real estate price indexes. Review of Economics and Statistics.
62(3): 442-448.
Smith HC
(1986). Inconsistencies in appraisal theory and practice. J. of Real Estate Research. Fall. 1(1): 1-17.