Project Topic:
COMPARATIVE ANALYSIS OF RENTAL VARIATION IN RESIDENTIAL AND COMMERCIAL PROPERTIES IN NIGERIA (A CASE STUDY OF OLD GRA PORT HARCOURT)
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.
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