COMPARATIVE ANALYSIS OF PORTFOLIO DIVERSIFICATION PERFORMANCE OF DIRECT AND INDIRECT INVESTMENT IN LEKKI, LAGOS, NIGERIA.

Abstract

The study examines the diversification performance of Direct and Indirect real estate investment in Lagos, Nigeria. It conducts a comparative analysis of the performance of residential properties in Lekki, Lagos and listed and unlisted property shares from 2009 to 2018. Primary data were sourced from real estate firms on rental and capital values of the predominant residential property types in Lagos namely Block of Flats, Detached buildings, Semi-detcahed buildings and Duplex. Secondary data on stock prices and dividends of listed property shares were sourced from Nigerian Stock Exchange and annual report of listed and property shares from 2009 to 2018. Treasury bill rates was also obtained from the Central Bank of Nigeria annual report from 2009 to 2018, it was used as proxy for riskless asset. The result showed that average return on residential properties was higher than that of property shares. Also, SKYE SHELTER and UNION HOMES shares indicated lower risk when compared to residential properties aside United Africa Company of Nigeria (UACN) property shares which witnessed an extremely high level of risk during the period. Residential properties performed better than property shares in terms of risk adjusted return measure (Sharpe ratio). 4 bedroom detached building , 3 bedroom flat, 4 bedrooom duplex and 4 bedroom semi-detached building had a Sharpe ratio of 0.59,0.80,0.50 and 0.47 respectively when compared to UACN, UNION HOMES and SKYE SHELTER shares with a Sharpe ratio of -0.20, -1.05 and -0.52 respectively. Similarly residential properties had superior performance in terms of Sortino ratio criterion. UACN, UNION HOMES and SKYE SHELTER shares had a Sortino ratio of -0.20, -1.05 and -0.52 while 4 bedroom detached building, 3 bedroom flat, 4 bedroom duplex and 4 bedroom semi-detached building had a Sortino ratio of 0.59, 0.80,0.50 and 0.47 respectively. In terms of growth, the performance of residential properties was also better during the study period as it evidently showed superior growth rates. It was established that property shares witnessed no growth at all, rather it recorded a decline in terms of its growth while residential properties climaxed an average growth rate of 6.58% which implies a positive rise, investment wise. The study further revealed that it is more beneficial to diversify in a portfolio with direct property investment as it offers a better return/risk ratio when compared to indirect property investment. The study concluded that diversification benefits abound in combining residential properties with property shares in a mixed asset portfolio. The study therefore recommends amongst others that updated performance analysis of real estate investments should be made available from time to time to reflect current economic realities.