AN EVALUATION OF THE PERFORMANCE OF INVESTMENT PROPERTY IN NASARAWA, NASARAWA STATE

AN EVALUATION OF THE PERFORMANCE OF INVESTMENT PROPERTY IN NASARAWA, NASARAWA STATE

ABSTRACT

This study evaluate the performance of investment property in Nasarawa, this study aimed at evaluate the performance of investment properties in Nasarawa with a view to determine their profitability or otherwise with objective which include to  identify the types of investments properties in the study area, to establish if there have been growth in rental value of investment properties in Nasarawa, to determine the returns, if any, on the investment properties in the study area over the years to measure the performance of investment properties using property performance index in study area. The research adopted the survey design which offers the opportunity to gather information through the use of questionnaires, personal interview and observation. A structured questionnaire was administered to the respondents which comprises tenants/landlords of both commercial properties within Nasarawa especially Ibro plaza, professionals in real estate and investors/property developers. The study shows that the causes of increase in rental value of the investment properties include; population growth, demand/supply force, improvement on the property and increased cost of property development, there is a high return on investment properties. Finally, it is recommended that there should be proper and professional management of investment properties in Nasarawa to ensure optimum returns to investors, prospective investors should make more investments in residential properties rather than shops and stores. And the government especially the local government authority and the state at large should create a favorable conditions for investors to enable them overcome challenges related to certificate of occupancy and acquisition and development of investment properties. 

CHAPTER ONE:

1.0                                                            INTRODUCTION

1.1       BACKGROUND OF THE STUDY

The study of performance 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 (Akinsola, 2012). This is even more important in Nigeria where only few studies have been carried out on the level of performance achieved by property investment. Moreover the impact of the ongoing changes in the global and local economy on the performance of real estate investment is serving to highlight the need for its careful consideration in the investment decision making process.

Investment in real property often involves a large capital outlay, which with the right entrepreneurial ingenuity can attract adequate return. Investment decisions in securities, share or real property are often made based on the expectation of future returns/benefit (Akinsola, 2012). Due to the uncertainty surrounding the future, the benefits may or may not be realized. The decision to engage in real property investment is among the most difficult and critical an investor has to make. This is not only because of the large capital outlay and long gestation period but equally once the decision is taking, an error which may result if discovered, can hardly be remedied.

Investment performance is an examination of annual total returns produced by an investment; it is basis of making comparative analysis among investment options. Return on capital investment is a good measure of performance of investment portfolio, in that, it represents success or otherwise of the investment and the return on investment is referred to the amount of money earned or produced over the property investment period per the amount invested (Kalu, 2001).

The most fundamental unit of evaluation of performance is the returns, and portfolio manager refers to this unit of measurement as holding period of return (HPR) (Baum, 2002).Holding period of return is important in calculating the rate of return on investment. Udobi, (2013) referred to this return as capital appreciation in addition to net rental income over a given period of consideration as expressed as the value of original purchase price. Real property return as a measure of performance is a constituent of two elements, income and capital appreciation (Hargitay & Yu, 1993).

Furthermore, income from property investment is referred to as rent and capital appreciation is referred to as the appreciation of property value over time (Hoesli & MacGregor, 2000). More importantly the need to measure the performance of property investment leads to analysis of risk factor to which the return is exposed (Kalu 2001; Udobi, 2013). Risk is simply the variability in return around its expected return. Therefore, relative performance of property investment is a function of risk and returns inherent in property investment. The most prudent investors usually diversify their investment portfolio as way of minimizing the effect of risk, therefore return to risk ratio is a measure of relative performance of different property investment portfolio in the market (Amidu, 2007).

1.2       STATEMENT OF PROBLEM

Over the years, there has been a remarkable development in the theory and practice of real property investment performance measurement in the United Kingdom and other developed nations, but that is not the same in Nigeria and other developing nations. In Nigeria as in the developed and emerging countries, decisions are often made to invest in property with the primary objective of achieving the necessary level of financial return. Best quality locations and sound property management are recognized as being extremely important in order to maintain and improve the return. However, while the investors in the developed countries attach a greater significance to the measurement of the level of performance being achieved, there are indications to suggest that their counterparts in Nigeria attach little consideration to this, (Mason, 1990; Kalu, 1988; Ajayi, 1998; Bello, 2003). The recent involvement of institutional investors such as banks, insurance companies’ e.t.c. in real property investment, underscores the need for the evaluation of the performance of investment property. Unfortunately little has been achieved in this area and much emphasis is placed on rental movement. Hence the researcher deemed it necessary to carry out an evaluation of the performance of investment properties in Nigeria with a particular interest to investment property in Tammah Nasarawa, Nasarawa State.

1.3       AIM AND OBJECTIVES OF THE STUDY

1.3.1    Aim    

The aim of this project is to evaluate the performance of investment properties in Nasarawa with a view to determine their profitability or otherwise.

1.3.2    Objectives

1. To identify the types of investment properties in the study area
2. To establish if there has been growth in rental values of investment properties in Tammah
3. To determine the returns, if any, on the investment properties in the study area over the years
4.  To measure the performance of investment properties using property performance index in the study area

1.4       RESEARCH QUESTIONS

The following research questions are formulated to enable the researcher achieve the desired aim of this study:

1. What are the types of investment properties in the study area?
2. Have there been growth / increase in rental values of investment properties in Tammah over the years?
3. What are the returns on investment properties in the study area?
4. How is the performance of investment properties using property performance index in the study area?

1.5       SIGNIFICANCE OF THE STUDY

The project is an attempt to evaluate the performance of investment properties in Tammah Nasarawa, the result of this study will bright to light how the investment in real estate have performed over the years, that is if there is high return on investment or not, whether the investment properties in the study area have able to without the risk inherent in the property market. Therefore it is believe that the result from this study will guide investors on decision making as regards to interments in the property or real estate market in the study area.

This research will also serve as a research material to other scholars and researchers interested in carrying out further research in the evaluation of the performance of investment in Tammah or Nigeria at large.

1.6       SCOPE AND LIMITATION OF THE STUDY

1.6.1    Scope

The scope of this project is on the evaluation of the performance of investment properties in Tammah Nasarawa. The study identifies and evaluates the performance of investment property such as commercial and residential properties in Tammah between 2010 to 2017.

1.6.2    Limitations

In the course of this study the researcher was faced several constraints, among which: 

1. Time Constraint: There is insufficient time available for the researcher to go round the study area in gathering and collecting all relevant data required for the writing of this project work as the researcher is expect to carry out the research and at the same time attends to academic activities in the study.
2. Financial constraints: This research work is limited to Tammah Nasarawa town due to insufficient funds of the research, such as cost of transportation, purchase of materials such as papers, biros, cost of taping, printing etc.
3. Non-availability of Data and Attitude of Respondents: It is obvious that some respondents are ignorance about what the study is all about, while those who are knowledgeable enough shows a look warm attitude towards the research .

1.7       DEFINITION OF OPERATIONAL TERMS

Evaluation: Evaluation is a systematic determination of a subject’s merit, worth and significance, using criteria governed by a set of standards (Sarah, 2002)

Performance: Performance is defined as the accomplishment of a given task measured against preset known standards of accuracy, completeness, cost, and speed. In a contract, performance is deemed to be the fulfillment of an obligation, in a manner that releases the performer from all liabilities under the contract.

Return On Investment: Return on investment or ROI is a profitability ratio that calculates the profits of an investment as a percentage of the original cost. In other words, it measures how much money was made on the investment as a percentage of the purchase price. It shows investors how efficiently each dollar invested in a project is at producing a profit.

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: Realestate 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. Realproperty rights are rights relating to the land.

Investor: An investor is a person that allocates capital with the expectation of a future financial return. Types of investments include: equity, debt securities, real estate, currency, commodity, token, derivatives such as put and call options, futures, forwards, etc.

1.9       HISTORICAL BACKGROUND OF THE STUDYAREA

Tammah is a street in Nasarawa town serving as a host community to the Federal Polytechnic Nasarawa. Tammah houses majority of the students of the institution and serve as ancestral home for the Gbagis in Nasarawa town. Over the years Tammah has witnessed increasing investment in property development in the area of residential and commercial properties in the form of shops and houses which provides accommodation for the teaming population of students and other residences in the area.

The performance of investment properties in Tammah is believed to have grown over the years as it is clearly seen in every nook and cranny of the areas where property owners and investors strive to develop residential property in different form and shapes such as single room, tenement buildings, self-contain, 1 bedroom flat, 2 and 3 bedroom flat and the likes. These structures are developed major to generate incomes for the investors as they are rented out to students and other residence of the study area in return for annual or monthly rents.

The values of these investment properties have appreciated over the years as there is a steady increase in rental values. For instance, single rooms that goes for Ten thousand (N10,000) naira in 2010 now goes for over fifteen to thirty thousand (N15000-N30000) naira in 2018 (Field Survey, 2018), while properties such as self-contains, 1 bedroom flat, 2 and 3 bedroom flat have seen such increase in rental values too. With the ever increase population of students and influx of people into Nasarawa in general it believed that investment properties in Tammah will continue to experiences a positive growth and have a great return on investment for the investors and property developers (Field Survey, 2018).

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