Real Estate Investment

Real Estate Investment

Real estate has to do with land and buildings which is often referred to simply as property or landed property. Barlowe, 1978) said that the concept of land as property involves real estate and has legal connotations. The legal connotations are concerned with the traditional and/ or modern-day constitutional rights bestowed on individuals, families, communities or the states to own, develop and manage land and its resources without hindering the rights of others. The rights are granted to private or public institutions to utilize land efficiently.Land means different things to different people. It includes all the physical development carried out by man on the earth’s surface.These are man-made improvements onlandused to attain economic goals through the application of capital, labour and technology. It covers all economic crops and trees, buildings, structures and installations, roads, bridges, dams and all sorts of physical development on land. Agricultural resources include the fertile farmlands where economic crops, trees and vegetables are cultivated and arable farmlands used for cattle rearing. Economic trees include cocoa, rubber, cotton, oil palm, cowpea, maize, yam, fruits, vegetables and cassava; while livestock include cattle, goat, sheep, exotic poultry and local fowls.

 

Residential land includes the various houses that are built for the occupation of individuals and members of the family. It may be tenement houses, flats, bungalows, maisonettes and multi-storey apartment blocks. Residential land is classified into high density, medium and low density residential areas within a residential estate, and is usually the largest use of land within the urban areas as well as privately or publicly built as permanent or semi-permanent structures. (Barlowe, 1978)

 

            Forms of Real Estate Investment

These refer to all the options any potential real estate investor has in committing his resources in expectation of future benefits. Before embarking on any type of investment, certain qualities are expected from an investment that is attractive to the investor. Investment decisions are influenced by various motives. Some investors spend huge amount of money to establish a business where they sit as the Chief Executive Officers (CEOs) while others do so for the pecuniary motive of earning returns, both of which invariably represents the reward for undertaking such investment. Whatever the nature of investment, a rational investor seeks to maximize his returns while minimizing the risk undertaken. To earn reasonable returns, a prudent investor has to bear some risks which are determined through various ownership strategies. The various forms of real estate investment are categorized as follows:

 

    1. Construction: These include buildings constructed for various purposes including residential, commercial, industrial, and recreational, among others. The development process involves acquisition of suitable sites, formalization of relevant title documents, construction for occupation or letting, and management of the developed estate. Almost any works to a property or change in management or use of premises can have the effect of modifying its usefulness and hence its income-earning capacity to the investor,Emoh (2004).

    2. Acquisition: This involves acquisition of a freehold or leasehold interest in a developed property. This transaction enables the initial developer to realize the capital invested on an existing development for some other ventures. It has become a common trend by politicians, senior government officials and top business tycoons in major urban centres in Nigeria. Real estate investors, like other investors in stocksand shares, seek the highest rate of returns on their capital. In some transactions, they may accept a low initial yield because of the expectation of future growth of the investment. However, the yield is a reflection of thelevel of risk inherent in the investment.

    3. Mortgage Transaction: This is a transaction where investors relinquish their interests in real estate in order to obtain some credit facilities. The interest held in the property serves as collateral for the borrowed funds. Redemption is at the amortization or full discharge of the principal and accruable interest thereof. Mortgage transaction is the most important single source of funding property development in the developed world. The establishment of mortgage institutions in Nigeria for this purpose is a welcome development. It creates avenue for potential investors to raise funds for physical development purposes.

    4.    Sales and Leaseback Transaction:This arises because an owner-occupier wishes to raise capital for a certain purpose and in the cause of doing this he decides to dispose off his property to somebody (corporate or private) on an arrangement that the lessor immediately leases the entire property or part of it back to him, the lessee. The lessee then occupies the property as an inferior interest holder (tenant) rather than as the owner, and is able to invest the capital in the business.

    5. Shares Acquisition: This involves the acquisition of shares in the companies involved largely in real estate transactions. Purchasing shares in a property company enables the investor to have a share in the returnsarising from any development, expansion and management of property values arising thereof. Property company shares also tend to have high levels of volatility. This is largely because many property companies have high borrowing and gearing capacities thereby making their profits particularly susceptible to economic and market changes. Dubben and Sayce,1991.

Ajayi (1998), Bodie, et al, (1998) agreed that investment is the current commitment of money or other resources in the expectation of earning future benefits. Greer and Farrell (1984) opined that the nature of investment is that you sacrifice something of value now expecting to benefitfrom that sacrifice later. Okafor (1983) defined investment very specially as “economic activities designed to increase, improve or maintain the productive quality of the existing stock of capital”. From the above, it can be discerned that investment is a two way process. One parts with or sacrifices a valuable thing and in return receives a reward or benefit with both the sacrifices and the reward being potentially financial or non-financial. Financially, the sacrifice is money paid out to acquire an asset while the reward is the return receivable as a periodic income flow and/or a capital gain.

 

         The Characteristics of Real Estate Investment

The investment characteristics of real estate which distinguish it from most other investments flow directly from its physical characteristics, which are peculiar to its source, land. Wendth and Paul (1979) identified these as the uniqueness of each parcel of real estate, the immobility of real property, the large size and bulk of typical real properties; and the very long or permanent life of improvement to the land. Stemming from these peculiar real estate characteristics, they identified certain economic, financial and legal characteristics which tend to influence real estate as a medium of investment. Property is infinitely heterogeneous more than other investment media; it is frequently indivisible, and each indivisible unit has a relatively high cost. These and many other features distinguish it from another investment media (Enever, 1981). Lean and Goodal (1977) conception of real estate is that of “rights” rather than the land and building themselves. Consequent upon this, the ownership and right of use can be separated. In this wise, the owner can transfer the right to use to another person in return for a periodic sum (i.e. rental income). He could also convey the ownership in consideration for a capital sum. Traditional property investment was a means to obtain security and regular income; thus, decisions were often made based on intuition and experience (Ajayi, 1998). This argument may be valid and the practice quite acceptable in the past when economy was stable and there was a high rate of success, but not in the present complex, dynamic economic environment. With the huge number of funds being committed to real estate investment, there is the greater need for accountability. The need here is for comparative investment advice. Every unit of real property consists of income and capital elements which should be valued and appraised as investment options in the same way as any stock or bond” (Igboko, 1984).The investment markets are becoming increasingly competitive and, investment in property cannot be considered in isolation from other markets.

 

       Factors Influencing Investment Decisions

The decision to invest or not in any investment opportunity will be influenced by the motives of the investor, (G.A.ESSIEN and J.A.YACIM, 2018). Certain factors are fundamental to investment decisions. In making decisions, investors would consider the following factors:

    1.    Security of Capital: this is the most important factor; because few investors will want to place their money in an investment if the prospect of losing that money is high. Only the gambler, or the person who has so much money that he or she can risk losing some, will be prepared to put their money into a risky venture and, even then, only if there is some possibility of a large gain if all goes well. Most investors will only wish to place their money in an investment if there is a strong probability that they will be able to recoup their capital at any point in time should the need arise. The greater the chance of there being able to get their original money back at any point in time (or the greater the security of their capital), the greater will be their willingness to invest. If the chance of getting their original money is slight, then an investment will be considered insecure and relatively unattractive. 

(a)   Security of Income is another important consideration, and it must be remembered that, in investing money, an investor is giving up the immediate use of that money and is allowing its use to pass to some other party. In return for giving the use of money to someone else, he or she requires payment, and this payment will be the interest the money earns. It is the reward for forgoing the use of money, and before an investor is prepared to give it up he or she will wish to be reasonably certain that they will get adequate payment for such use, and that there is a high degree of certainty that the payment will in fact be made. 

    b. Regularity of income – Coupled with the certainty that adequate interest will be paid, will also be the wish in most instances to receive regular payments of interest.  If regular payments are made the borrower is less likely to get into arrears, while the receipt of interest at regular intervals enable lenders to phase such receipts to meet regular expenditure which they may be incurring, and this will assist their own budgetary control. 

         

        Growth Prospect – Inflation can have a significant effect on a business over the investment period. The effect of inflation on return on investment can be severe over the life of the project. Some investments lose their real value while others may well increase in real value as well as money value. To keep pace with the changing value of the Naira therefore, an investor will prefer to invest where capital and income will appreciate in real value.

        Liquidity – the concept of liquidity describes the ease, speed and cost with which an      investment can be converted into cash. Investors generally prefer investments which are capable of being into cash which may be needed in the event of better alternatives.

         The Implication of Taxation – investment decisions that in other respects might be the right ones may turn out to be unsound when the effects of taxation are considered. In investment appraisals, therefore, the effects of the following taxes must be considered.

 a.       Taxation on income

b.      Capital Gain Tax

c.       Value Added Tax

d.      Capital Transfer Tax.

The size and timing of tax payment is very important to successful operation of an investment.

THE CONTRIBUTION OF URBAN INFRASTRUCTURE TO RESIDENTIAL REAL ESTATE INVESTMENT IN AWKA, ANAMBRA STATE

THE CONTRIBUTION OF URBAN INFRASTRUCTURE TO RESIDENTIAL REAL ESTATE INVESTMENT IN AWKA, ANAMBRA STATE

ABSTRACT

This project titled “The contribution of Urban Infrastructure on Residential real estate investment in Awka, Anambra State” is aimed at assessing the effects of urban infrastructure on residential real estate investment in the study area, to achieve this aim the following specific objectives shall be pursued:  to identify the types of residential properties, to identify the types of infrastructure available in the study area, to access the adequacy of the infrastructure and to analyze the relationship between infrastructural facilities and property value. The researcher adopted the use questionnaire to collect data from the research population which consists of tenants, landlords, property developers and real estate firms that resides in Awka the capital of Anambra state. The use of tables, percentages and descriptive statistical tools were used to analyze the data. The results of analysis indicates that the availability of urban infrastructure positively affect the rental value of residential property this is shown clearly in the rental values of properties located in rural areas where there are no infrastructures and those found in urban areas where infrastructures such as electricity, portable water, medical centers etc are found.

CHAPTER ONE

1.0       INTRODUCTION

1.1       BACKGROUND OF THE STUDY

An important barometer for measuring an urban areas functionality, liveability and development is its physical infrastructure. The efficiency of any urban area depends largely on the provision of efficient infrastructural facilities and services (Babarinde, 1998). Okusipe (1999) posited that apart from being a major pointer to environmental quality urban infrastructure is a critical agent for the socio-economic development of any urban area. He further asserted that urban infrastructure plays an important and indispensible role in economic, social and environmental aspects of life of an urban setting. It has tremendous impact on the quality of urban life. It is a key developmental asset of any country in that it provides the backbone for industrial concerns located within an urban area to effectively and efficiently drive their production processes.

Urban infrastructure cover a wide spectrum of services and facilities, namely; electricity, water, roads, walkways, waste disposal systems, communication, primary health facilities and services, schools and housing. These are more often provided by the government. Where urban infrastructure is adequately provided and efficiently managed productive and profitable land uses are usually attracted towards the area. These uses out bid/out compete less productive uses through better rent offers. This competition for locations with good urban infrastructure usually results in an increase in land and property values, either sales or rentals (Harvey 1993). This study therefore examines the contribution of urban infrastructure to residential real estate investment in Awka, Anambra state.

1.2       STATEMENT OF THE PROBLEM

The needs and important of urban infrastructural cannot be underestimated since investment in infrastructure is well connected to all factors of economic development. This always includes an increase always offset by increasing opportunities and income to the general vicinity. The closer a residential area, is to new infrastructural projects, the higher the increase in its value. However, the reverse relationship is also true as failing in infrastructural investment is closely related to hold that, decaying or neglecting infrastructure is a major determent of economic decay and recession.

The problem therefore is that, this important and significant relationship between urban infrastructures and property value has not being properly identified thereby resulting in neglect in terms of infrastructural investment especially in the study area.

1.3       AIM AND OBJECTIVES

The aim of this study is to examines the contribution of urban infrastructure to residential real estate investment in Awka, Anambra state. In order to achieve this aim, the following objectives are critical:

1. To identify the types of infrastructure available in the study area.
2. To examine the level of urban infrastructure in the study area.
3. To analyse the effects of urban infrastructure on residential property value in the study area.
4. To make appropriate recommendation on the way forward.

1.4       RESEARCH QUESTION

            Below are research question derive from the objective listed above.

1. What are the types of urban infrastructure in the study area?
2. What is the level of urban infrastructure in the study area?
3. What are the effects of urban infrastructure on residential property values in the study area?

1.5       JUSTIFICATION OF THE STUDY

Similar studies in the past have revealed the poor state of our urban infrastructure and its consequential effect on property value with much emphasis on the relationship that exist between infrastructure and property value. However the income generation capacity of infrastructural provision to the public authorities through high rental values, rates and taxes has been neglected. This study is therefore necessary to assist public authorities in putting more efforts in infrastructural investment and as well take full advantage of the income that can be generated from such investment.

1.6       SCOPE AND LIMITATION OF THE STUDY

The research work is confined to the study of the contribution of urban infrastructure to residential real estate investment in Awka, Anambra state. It deals with rental value of residential properties such as single room, two bedroom flats and three bedroom flats which are the common types of residential properties found in the study area. The work activities however, will cover the provision of road network within a period of 2010-2015.

1.7       DEFINITION OF TERMS

Some of the key words used in this work and their meaning as contain and used in the research are:

Infrastructure: This is seen as a wide range of economic and social facilities crucial to creating an enabling environment for economic growth and enhances the quality of life, Nubi (2002).

Property: Fraister (1993), stated that properly is the subject matter of ownership that anything which belongs to a person going to exclusive right to enjoy a thing. Example being land and building, real properties, denotes interest and right inherent in the owners of the physical real estate. This cluster of right which could be made the subject of a real activities “title” that signifies the lawful right of possession.

Value: Value is basically the worth of a thing which depend largely on the basis of assessment and unit of measurement.

Property Value: property value according too Millington (1981) is the money obtainable from a person willing and able to purchase property when it is offered for sale by a willing seller, allowing for reasonable time for negotiation and with the full knowledge of the nature and uses which  the property is capable of being put.

1.8       HISTORICAL BACKGROUND OF THE STUDY

Awka (Igbo: Ọka)^[2] is the capital city of Anambra State, Nigeria. The city was declared capital on 21 August 1991, after the creation of Anambra and Enugu state, which moved the capital from Enugu to Awka (an administrative center since pre.-colonial times). The city has an estimated population of 301,657 as of the 2006 Nigerian census, and over 2.5 million as of a 2018 estimate. The city is located at199.1 kilometres (123.7 mi), by road, directly north of Port Harcourt in the centre of the densely-populated Igbo heartland in South East Nigeria.^[3]

The West-East Federal highway links Lagos, Benin City, Asaba, Onitsha, and Enugu to Awka and several local roads link it to other important towns such as Oko ,Ekwulobia, Agulu, Enugwu-Ukwu, Abagana and Nnewi.

Strategically, Awka is located midway between two major cities in Northern Igboland, Onitsha and Enugu, which has played a significant role in its choice as an administrative center for the colonial authorities and today as a base for the Anambra State government.

“Awka has a certain kind of aura about it, because it was the place of the blacksmiths that created implements which made agriculture possible.” – Chinua Achebe

Awka is one of the oldest settlements in Igboland, established at the centre of the Nri civilisation, which produced the earliest documented bronze works in Sub-Saharan Africa, around 800 A.D., and was the cradle of Igbo civilisation at large.

The earliest settlers of Awka were the Ifiteana people, the name Ifiteana roughly translating into ‘people who sprouted from the earth.’ The people, themselves, were renowned as farmers, hunters and adept iron workers, all of whom indigenously inhabited the banks of the Ogwugwu stream, in what is now known as the Nkwelle ward of the city.^{[citation needed]}

The deity of the Ifiteana was known as Ọkịka-na-ube, or the god renowned for the spear, and the Ifiteana were known as Ụmụ-Ọkanube, or “worshippers of Ọkanube,” eventually shortened to both Ụmụ-Ọka and simply Ọka (Awka when written in its anglicised form).

In ancient times, Awka was populated by elephants, insofar that a section of the town was named Ama-enyi, with a corresponding pond, Iyi-Enyi, used for elephants to gather to drink. The elephants were hunted for their prized ivory tusks (okike), which were kept as a symbol to the god Ọkanube in every Awka home, with hunting medicine stored in the hollow of the tusk.

Over time, the town became known for metal working and its blacksmiths were prized throughout the region for making farming implements, dane guns and such ceremonial items as Oji (staff of mystical power) and Ngwuagilija (staff of Ozo men).^[5]

During pre.-colonial times, Ọka became famous as the Agbala oracle, specifically a deity that was said to be a daughter of the great long juju shrine of Arochukwu. The oracle, which Chinua Achebe used as inspiration in his book Things Fall Apart ^[6]), was consulted to whenever disputes (far and wide) occurred, until it was eventually destroyed by colonial authorities, in the early part of the twentieth century.

Before the inception of British rule, Ọka was governed by titled men known formally as Ozo and Ndichie, who were accomplished individuals in the community. They held general meetings, known as Izu-Ọka, at either the residence of the oldest man (Otochal Ọka) or a place specially designated by the titled men. He was the Nne Uzu, or ‘master blacksmith,’ irrespective of whether or not he actually knew the trade, as the only master known to Ọka was the master craftsman, the Nne Uzu.

In modern times, Awka has adopted the republican system and is currently administered by the Awka South Local Government Area. However, it still preserves its traditional systems of governance with the respected Ozo-titled men often consulted for village and community issues and a paramount cultural representative, the Eze Uzu, who is elected by all Ozo-titled men by rotation among different villages to represent the city at state functions.

Awka should not be confused with Awka-Etiti which is a town in Idemili South local government area that is often mistaken for the main capital