ABSTRACT
This study aims at examining the effect of economic downturns on the growth of real estate investment in Nigeria, 1992 – 2016. Secondary data on the selected economic downturns were obtained from the Nigeria National Bureau of Statistics (NBS). Descriptive and inferential statistics were used to determine the effect of economic downturns on the growth of real estate investment. This involved the use of weighted means, Pearson Product Moment Correlation and the Ordinary Least Square Regression. Findings from the study showed that interest rate has an inverse relationship with the growth of real estate investment, while money supply and population are positively related with the growth of real estate investment in Nigeria. This study recommends that Government should formulate favorable interest rate policies to assist in stabilizing property prices, thereby making housing more affordable. Secondly, monetary policy measures should be enhanced by the Government through the Central Bank of Nigeria (CBN) to increase money supply, in order to increase investment in real estate. Also, the financial reform and credit policy of the Federal Mortgage Bank should be geared towards improving the functions of the National Housing Fund (NHF) by making more loanable funds available to the civil servants and the non-organised private sector (large population) through soft loans bearing attractive interest rate and lessen the stringent collateral security requirements on the citizens to enhance housing affordability.
CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
Economic downturns significantly determine the growth of real estate investment. The demand for real estate either residential or commercial has been consistently on the increase. The high demand for both residential and commercial buildings attracted investors in the Real estate industry and consequently led to significant growth in the sector caused by various economic downturns. Real estate investment plays the crucial role of providing employment opportunities, offering shelter to households, poverty alleviation and improved income distribution (Masika, 2010). Currently, the active collective investment vehicles that are regulated by the Securities and Exchange Commission (SEC) are equity-based fund, money market fund, bond fund, Balanced- based fund, ethical fund, umbrella fund, exchange traded fund (ETF) and real estate fund (Jumia, 2014). Real estate fund in Nigeria recorded remarkable growth from N15.92billion to N43.382billion in 2014. They said Nigeria has experienced a rise in real
estate investment owing to increased desire of Nigerians to own homes coupled with the increased rural urban migration, as well as demand for office space as more small and medium enterprises come into being.
Wisniewski (2011) indicates that the processes occurring in real estate are subject to different impulses, and these impulses vary, depending on the financial and economic situation of a country. For instance, different economic downturns change over time and they influenced economic processes, practices and outputs in an economy.
Macroeconomic factors often influence one another, and at times they are strongly correlated. Hence, when one factor changes, wrinkle effect occur and the economy become highly affected (Lynn, 2007). Consequently, measuring the effect of economic downturns is usually a difficult endeavor.
For the purpose of this study, the researcher anchored the research on three economic downturns (interest rate, money supply, and population). Thus, the study tends to examine the effects of these variables in the economy with specific reference to the real estate market. The fluctuating interest rates do oscillate the interest charged by lending institutions on loans and by implication increases the cost of capital for investment. Likewise money supply, there is a direct relationship between the amount of money supply that is available in the system and the amount of money that finds its way into the real estate market. This is because real estate is one of the most preferred investment classes in the world. It is considered to be a safe haven and one of the safest hedges against inflation. On the other hand, Population of an area determines the demand of real estate. Population growth within an area means more people will need houses. When the number of prospective residents grows at a faster rate than the supply of new properties on the market, this makes current housing more valuable, so prices increase. Property investors are therefore keen to buy real estate in locations where population growth forecasts are high, particularly if the area is tipped for rapid expansion and is relatively affordable.
1.2 Statement of the Problem
Growth of Real Estate Investment in Nigeria, like those of many other less developed countries, has been in the increase albeit low affordability and low availability of housing. The link between economic downturns and the growth of real estate investment is strong. The real estate sector of the economy, which is said to be economic growth driver, is not effectively and efficiently serviced by the financial market. The banks‟ lending rate to both investors and individuals is not favorable, which consequently makes housing to be expensive, which affects affordability and availability to the general public. Despite the massive investment in the real estate sector, housing is still not affordable and relatively not available due to the inability of the people and investors to get loan from financial institutions at affordable interest rates.
The growth of real estate in any context is highly affected by series of economic factors. For instance, the housing bubble can be associated with high desire for home ownership in an economy, buying for speculation rather than shelter, low interest rates, viewing residential real estate as a safe harbor, and bad lending prices. Hence, variables such as interest rate, money supply and population, are bound to affect the growth of real estate investment and other sectors in the economy.
The population of Nigeria is estimated at 202million which requires at least 820,000 housing units per annum based on an estimate of 9 dwelling units per 1000 number of population yearly (World Bank, 2025). World Bank estimates puts it that over N59.5 trillion will be required to bridge the gap of 17 million housing deficit. Therefore, achieving affordable housing in Nigeria requires enormous efforts by the citizens, stakeholders and government. Hence, to meet up with this high demand that will enhance growth of real estate investment, favorable government policies must be made in the areas of interest rate, money supply and control of population explosion.
The growth in real estate investment is the dependent variable whose growth is affected by the behavior of the economic downturns, which are the independent variables. Fluctuating interest rates do oscillate the interest charged by lending institutions on loans and by implication increases the cost of capital for investment. Consequently, this high cost of capital for investment translates to high prices for housing, which affects demand, thereby making it not affordable. On the supply side, low interest rate from banks attracts more investment in real estate, which consequently increases housing availability. The amount of money supply that is available in the system and the amount of money that finds its way into the real estate market is highly related. Real estate is considered to be a safe haven and one of the safest hedges against inflation. By implication, more money supply stimulates demand and enhances affordability of houses. Likewise on the supply side, with more money supply, investors also have the ability to build more houses to meet up with demand. On the other hand, Population of an area greatly affects the demand for real estate. Population growth within an area means more people will need homes. Consequently, this attracts investors in the real estate sector to meet up with such rise in demand.
Therefore, this study seeks to determine the effect of economic downturns on real estate investments in Nigeria by establishing the direction or strength of relationship between the variables and the significance of the variables on the growth of real estate investment and enhancing affordability and availability. This is aimed at unveiling the ways economic downturns can aid in bridging the housing deficit gap in Nigeria by enhancing affordability and availability.
1.3 Research Questions
The following research questions were raised to guide the direction of the study;
i. What is the effect of interest rate on growth of real estate investment in Nigeria?
ii. What is the impact of money supply on growth of real estate investment in Nigeria?
iii. Does population affect the growth of real estate investment in Nigeria?
1.4 Objectives of the Study
The broad objective of the study is to evaluate the effect of economic downturns on growth of real estate investment in Nigeria between 1992-2016. The following are the specific objectives of the study;
i. To assess the effect of interest rate on growth of real estate investment in Nigeria.
ii. To examine the impact of money supply on growth of real estate investment in Nigeria.
iii. To determine if population affect growth of real estate investment in Nigeria.
1.5 Statement of the Hypotheses
The following hypotheses were stated to guide the study.
H01: Interest rates have no significant effect on the growth of real estate investment in Nigeria.
H02: Money supply has no significant impact on the growth of real estate investment in Nigeria.
H03: Population does not significantly affect the growth of real estate investment in Nigeria.
1.6 Scope of the Study
This study is on the effect of economic downturns on the growth of real estate investment in Nigeria. The study was carried out with a view to provide viable recommendations on how to influence economic downturns in enhancing real estate investment via affordable and available housing, economic growth and development in general. Hence, the study seeks to establish the effect of the selected economic downturns on the growth of real estate investment in Nigeria, with specific reference to the period 1992 – 2016.
1.7 Significance of the Study
The findings of this study would also provide understanding to policy makers and real estate players as to whether economic downturns can be used as a useful tool in ensuring housing availability and affordability in Nigeria.
The study will add value to theoretical discussion by testing the relationship of economic downturns and investment under an environment where demand exceeds supply. The findings of the study would also serve as a baseline or reference document for future researchers who may be interested in the same or similar topic. The study will also reveal the significant impact economic downturns have on the growth of real estate investment and by extension bridge the housing deficit gap in Nigeria.
1.8 Organization of the Study
This dissertation is divided into five chapters. Chapter one is the introduction and chapter two is literature review. Chapter three is the methodology, while chapter four is data presentation, analysis and discussion of results. Finally, chapter five is summary, conclusion and recommendations.
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