AN ASSESSMENT OF RESIDENTIAL PROPERTY VALUE DETERMINANTS: A CASE STUDY OF IKEJA, NIGERIA

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By Olumide T. Agunbiade

ABSTRACT

 This study investigated, by means of primary and secondary sources, the influence of residential real estate property characteristics on property values, using Ikeja area of Lagos State as a case study.

 It revealed a positive correlation between property market values and location; an indication that this uniqueness reasonably predicts property market values.

The study demonstrated that although several property features can be identified with residential real estate properties, only a few important ones have significant impact on the market values of such properties.

This study identified various property characteristics that have relatively strong impact on market values (prices) and to an extent influence the sales and purchase decisions of sellers and buyers in Nigeria.

 The recommendations of this study should enable Real Estate Professionals and investors to make fair estimates of the market values of residential real estate properties given the features of such housing units. This would aid rapid valuation, help to improve housing quality and make possible mass evaluation of properties.

The study recommends to real estate investors, practitioners and professionals to use the knowledge of significant property characteristics for efficient valuation, investment decisions and proper management of residential housing units.

                                     CHAPTER ONE

                    INTRODUCTION AND BACKGROUND

1.1 INTRODUCTION

No other industry depends on accurate and timely information for decision making and survival as much as the Real Estate Industry. The Industry according to recent study and research has an estimated 5 million participants in Nigeria.

Nigeria has a large real estate market that is untapped due to limited circulation of information about property characteristics and their impact on market values, organizations, available properties and professional services available in various locations nationwide.

As real estate consultants and practitioners market their properties, they recognize that in order to generate success, their information must be well circulated and this information should be available, accessible, reliable and affordable to the property buyers, sellers and investors with speed, precision, accuracy and at the magic moment when the client needs the information.

1.2          BACKGROUND TO THE STUDY

For decades, real estate property was generally seen as legacy a parent bequeaths to the offspring. However, with the realization that real estate is a major source of capital appreciation and a good hedge against inflation, the real estate market is coming close in popularity and importance to the money and capital markets.

Today, real estate property constitute a significant index to man’s wealth. As economic activities have achieved more sophistication over time, real estate has continued to play a central role in their development.

The dictionary defined Property as anything, tangible or intangible whereby legal relationships exist between persons and the State enforces a possessory interest or legal title in that thing. Recently Igbinosa (2011) opines that property is used to describe particular concentration of power over things and resources. Narang (2007), gave a more detailed definition of property as the ability an individual or group of persons have to express power or authority over a substance, thing or substance based on its relationship with the substance and depending on the nature of the property, an owner of property has the right to consume, sell, rent, mortgage, transfer, exchange or destroy it, or to exclude others from doing these things.

Property serve as generating revenue to the owner. This assertion was supported by Oni (2009), when examining the benefits of commercial property and was of the opinion that commercial property generates streams of income to the owner and also to the government inform of tax. Egbenta (2009), looked at the benefit of property from the social perspective and concluded thatlanded property helps to define the social relations of man in his community; this can be seen in most sub-Sahara African countries, where land defines the social, economic and political relations of man in his society, especially in urban areas. Property also serves as resources this view was also shared by Fabiyi (2006), when they perceive landed property as an indispensable resource, the abundance or scarcity of which has profound effects on man and development.

Value is often seen as the worth of a property. Most people often ascribe the same meaning to value, price and cost. Kuye (2008), assisted in differentiating between them, according to him value represents the actual worth of whatever it is that you are buying, such as goods or services, price is the amount of money you pay for goods and services while cost is the amount that has to be paid or spent to buy or obtain something.

International Valuation Standard and Committee (IVSC) (2007), defined value as the estimated amount for which an asset should exchange on the date of appraisal between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion

However different authors have different opinion about the concept of value but there is something unique in their opinion which is “value represents the worth of something and it’s usually subjective in nature”. According to Igbinosa (2011), different property would command different values and would also have different factors affecting or influencing their values.

A number of factors affect residential property values in Nigeria. These include location, demand and supply, accessibility, institutional and economic factor. The market value may mean the amount of money which the property will command in exchange. Yet, value is not the same as price or cost.  

Besides, there are differences in values of similar properties situated in different locations. Values of properties in good location having serviced facilities are expected to be higher than those in the areas that are good but lack adequate infrastructural facilities and services.

Regardless of these advantages, real estate practitioner, financials and investors in commercial properties are faced with dearth of data on what level of rental income a development project could reasonably be expected to realize in a transaction involving willing and able parties.

The overall impact of risks and uncertainty in the property market calls for tool to predict future trend in commercial property market with some measure of accuracy. This is to ensure that income which a given commercial property generates in the future be sufficient to recoup the capital outlay and be sustained subsequently.

The importance of location and other property features to the value of properties would therefore be the focus of this study through an assessment of prime residential area of Lagos state.

Also, this study will identify various property characteristics that have relatively strong impact on market values (prices) and to an extent influence the sales and purchase decisions of sellers, buyers and investors in Nigeria.

 The value for a residential, commercial industrial, agricultural special property would differ from each other as well as the factors affecting them. Against this background the research would determine the factors influencing residential property values.

1.3          STATEMENT OF PROBLEM

Real estate has contributed to the growth and development of the Nigeria economy despite the sector has continued to face challenges such as poor funding, poor infrastructure, high cost of building materials, lack of government policies and unethical standards.

Although several studies have focused on investment in the capital market, not much is said of the real estate sector (Eriki & Udegbunam, 2008).

The problem this study seeks to solve is to determine which property characteristics are important in the determination of the market value of a residential real estate in prime areas such as Ikeja in Lagos State.

   Another problem is to determine the practical model for the valuation of residential housing units in Nigeria property market.

Also, this study will identify the property features that have significant influence on property market values using primary and secondary sources.

In addition, this study will determine if location is a major factor in residential property valuation in Nigeria and the cumbersome bureaucratic delay associated with obtaining land and government approval in relation to property development.

These will be achieved through the measurement of primary and secondary data with the aim of providing professionals, investors and stakeholders with valuable information.

1.4          PURPOSE OF STUDY

The purpose of this study is to assess and document residential property value determinants with a view to providing potential investors with valuable information for decision making.

The objectives are:

1.      To identify residential property characteristics and how they determine property values

2.      To examine residential property value determinants

3.      To establish the implication of the determinants on investor’s decision.

4.      To suggest possible recommendations that can serve as an antidote to the identified implication

1.5 SIGNIFICANCE OF STUDY

This study will contribute to the body of knowledge that are available in both print and broadcast medium. Also, it will serve as a reference material for students, scholars and other researchers.

In addition, it will help individuals, professionals, investors, communities, change agents, media professionals and the society at large on how to identify residential property characteristics and how they determine property values in Nigeria.

 Also, this study will help researchers, scholars and investors to identify various residential property characteristics that have relatively strong impact on market values (prices) and to an extent influence the sales and purchase decisions of sellers and buyers in Nigeria.

Aside contributing to the body of knowledge and serving as a reference material, the recommendations of this study should enable Real Estate Professionals and investors to make fair estimates of the market values of residential real estate properties given the features of such housing units. This would aid rapid valuation, help to improve housing quality and make possible mass evaluation of properties. 

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