INFLATION HEDGING CAPABILITY OF REAL ESTATE INVESTMENTS IN SELECTED CITIES IN NIGERIA

Abstract

One of the essential objectives of holding an investment portfolio is to protect the purchasing power of the investors against inflation and enjoy a continuous positive real rate of returns. In Nigeria, so many investors are not too certain of the type of investment they can invest in because of the rate of investment they can invest in because of the rate of the rate of inflation. The study examines inflation hedging capability of real estate investment in some selected cities (Abuja, Lagos and Port Harcourt) in Nigeria. The target population for the study comprises of the Registered Estate Surveying and Valuation firms and the United African Company in Nigeria (UACN). A structured questionnaire was administered on the principal partners/ branch managers of the practicing Estate Surveying and Valuation firm in the study areas. In all, a total of five Hundred and forty five (545) questionnaires were administered among the estate surveying and were administered among the estate surveying and Valuation firms in the selected cities. Four hundred and forty six (446) questionnaires were retrieved, showing 81.8% response rate. The secondary data on inflation required for the study was obtained from the records of the Nigerian National Bureau of Statistics (NBS) and the Central Bank of Nigeria (CBN). The data were analysed using both Descriptive and Inferential Statistics. The Descriptive Statistics includes the Frequency Distribution Table and Mean Score, while the Inferential Statistic used for the analysis are the Analysis of Variance (ANOVA) Ordinary Least Square Regression analysis and Autoregressive Distributed Lag Regression (ARDL). The data were tested for stationarity using Philip Perron unit root test, which showed that the data sets were a combination of different order of integrations. The study revealed a corresponding p-value of 0.304 for duplex/UACN property and 0.124 for block of flats/UACN. This implies that there is no significant difference at 0.05 alpha levels for the return of duplex/UACN and block of flats/UACN property across the locations. However, detached Property/UACN and office space/UACN return shows a corresponding value of 0.003 which implies that there is significant difference in the return of detached property/UACN and office space/UACN. The result of the hedging capability indicated that direct real estate is not an all-time hedge against inflation as it is traditionally perceived to be; there are instances where they provided perverse hedge against inflation for some particular property type. The relationship of inflation rate and real estate return varies; while some of the understudied properties exhibited positive relationship with inflation, others exhibited negative relationship. It is expected that the findings of this study will provide guidance to both individual and institutional real estate investors in Nigeria to select those investment options that promise maximum returns and a hedge against inflation and not go by the general perceived thought that real estate investment is a hedge against inflation. The study recommends that Nigerian government should put relevant policies in place that will help bring down the inflation rate to a single digit and also maintain the single digit inflation rate so as to avoid volatility. Also, Federal Government should encourage the investors in direct property investment through the changes in monetary and fiscal policies to enhance direct property development. Also, indirect Real Estate Estate Company should introduce policies that will enhance the dividend of the shareholders.