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 Port
Harcourt.
2. To
analyze the factors that influences the value of residential and commercial
properties in Port Harcourt.
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 Port
Harcourt?
2. What
are the factors that influence the value of residential and commercial
properties in Port Harcourt?
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.
1.8
DEFINITION OF TERMS
RENT: The universal
dictionary of the English language (1971) defined rent as the regular payment
made for the use of land or buildings that belongs to someone else. The
Economist defined rent as “the revenue from land resources that is equal to the value of its marginal services rendered in a
productive process” (Richfield, 1974).
In summary therefore, the word
rent is that fixed periodic payment made by a tenant to his landlord for the
exclusive possession and use of leased property.
PROPERTIES: According to the High Court, the Court of Appeal and the
Supreme Court, property is the right to possession, enjoyment and disposition
of all rights and things subject to ownership. Property is therefore a legal
right expressing the relationship between a person, the owner and his
possession of the thing owned.
A RESIDENTIAL PROPERTY: according to Kilpatrick (1999) is a land use in which
housing predominates, as opposed to industrial and commercial areas. Housing
may vary significantly between, and through, residential areas. These include
single-family housing, multi-family residential, or mobile homes.
COMMERCIAL PROPERTY: According
to Malys (2012), this refers to buildings or land intended to generate a
profit, either from capital gain or rental income. It includes office
buildings, industrial property, medical centers, hotels, malls, retail stores,
farm land, multifamily housing buildings, warehouses, and garages. In many
states, residential property containing more than a certain number of units qualifies
as commercial property for borrowing and tax purposes.
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