Project Abstract

<p> The<br>impact of inflation on direct or indirect is considered one of the primary<br>financial concerns of long-term investors. Inflation has caused certain<br>distortion &nbsp; in the economy which made<br>real estate investors to hedge against the risks <b>rulling </b>to increase in rent and prices of land and landed<br>properties. The outcome of this is burdened on the occupier (tenants) of the<br>real estate in any economy. The study aims of the study to evaluate the effect<br>of inflation on real estate in Uyo metropolis. The objectives are to identify<br>the cause of inflation and how it can be controlled, to find out how inflation<br>has influenced change in rent of tenant of real estate and to evaluate the<br>effect of inflation on real estate investment. To achieve this, the stratified<br>random sampling technique and descriptive survey design has use. Data was<br>collected using questionnaire of which 400 questionnaires was distributed to<br>cover respondents such as estate surveyors and valuers, property investors,<br>civil servant, tenant and students in four locations to include; Barracks Road, Oron Road, Ikot Ekpene Road,<br>Uruan Street. Collected data was analyzed with SPSS software in tabular form<br>and the hypothesis was tested with chi-square technique. Finding shows that<br>factors such as increase in money supply, wage increment, increase in demand<br>for property and high population growth are the major causes of inflation<br>leading to a positive and negative effect on real estate. The positive effect<br>is on the investors side which maximizes return from its investment by increase<br>in rent when due, litigation issues and void tenancy. Therefore, recommended<br>include proper regulation of fiscal and<br>monetary policy, adequate supply of<br>affordable real estate, proper tenants consideration and selection, landlord/tenant<br>relationship and understanding, proper implementation of building and<br>regulation of prices of imported building and construction materials. <br></p>

Project Overview

<p> <b><b><b><b></b></b></b></b></p><p><b><b><b><b>INTRODUCTION</b></b></b></b></p><p><b><b><b></b></b></b></p><b><b><b><p><b>1.1 &nbsp; &nbsp; &nbsp; BACKGROUND OF THE STUDY</b></p><p><b></b></p><b><p>Inflation is<br>seen to be persistent rise in the general price level of goods and services in<br>a country over a long period of time. It can be described as a decline in the<br>value of money or an increase in the quality of money in circulation, leading<br>to a decline in the purchasing power of existing money (Zou <i>et al.,</i>&nbsp;2011). To say that inflation<br>status in most advance economics is moderated to be a single digit level is to<br>restate the obvious. Considering the emerging economic, inflation is mostly in<br>a two digit figure (Nwude, 2012). For instance, in Nigeria, which is the<br>concern of the study, inflation rate averaged 12.34% from 1996 until 2014,<br>reading on all time high of 17.56 in the beginning of the Year 1996 and a<br>record low of 2.49% in the beginning Year of 2000 (Trading Economic, 2014).<br>Currently inflation rate is up to 18.42% in Nigeria. Temgbode (2011) is of the<br>opinion that this is role that the inflation rate in Nigeria is outstripping<br>the rate of return on the investments.</p><p>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; Inflation<br>in relation to real estate are of various type; actual, expected and<br>unexpected. The actual inflation is the rate of increase in price over a given<br>period, (Oner, 2012); the expected inflation refers is change in price level<br>that is expected at the starting time of an asset or when the asset is<br>appraised. (Appraised Institute, 2008). The difference between the actual and<br>the expected inflation is seen to be the unexpected inflation which are all<br>measured using the Consumer Price Index (CPI) and the producer price index (PPI)&gt;</p><p>&nbsp; &nbsp; &nbsp; &nbsp;<br>A situation under inflation where the inflation rate of some assets are<br>higher than the consumer price index<br>(CPT), it suggests that <br>those assets are <br>hedge against inflation and as such real estate investments<br>is one of them with greater advantage to other investment (Bello, 2004). &nbsp; </p><p>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; Real<br>estate investment is simply the acquisition, ownership, management, rental and<br>sales of direct real estate investment (land and building) and indirect real<br>estate investment (real estate securities) which are the various ways of<br>investing in real estate (Amidu and Aluko, 2016). &nbsp;According to Garay and Tor Horst (2009),<br>investment in real estate can be done in different ways; (a) Equity where one<br>can invest in the equity part of real estate by buying real estate mutual<br>funds, example, (REITS) (b) debts where one invest in the debts part of real<br>estate through securitized form and lastly by acquiring real estate physically.</p><p>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; The<br>ability of real estate invested asset to provide high rate of returns above the<br>rate of inflation is concerned to investors. This is known as inflation hedge<br>which is provided when the returns on investment increases at a commensurate or<br>higher rate than general price level or increase (Glascock <i>et al.,</i>&nbsp;2005). In other words, the investment could be expected to<br>hedge against inflation through the income produced, capital appreciation or<br>the combination of both which is predicated on the fact that the two basic<br>reason why an investor would want to hedge against inflation is first to match<br>future liabilities that are linked to inflation and secondly to protect the<br>value of an investment (Martin, 2010).</p><p>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; Real<br>estate investment asset have long been recognized as a good hedge against<br>inflation. (Feng <i>et al., </i>2003; Down<br>2009, Bello 2004; Debera 2014). The direct real estate investment provide a<br>good hedge against inflation than the indirect real estate investment (Amidu<br>and Aluko 2006; Georgier 2012; Yobaccio 1995; Amidu <i>et al., </i>2008; Karley 2009; Miles and Mahoney 1997). Others view<br>that the indirect also provides an hedge against inflation. (Maorer and<br>Sebastian 2002, Lu and So 2001; Chatrath and Long 2008). </p><p>Real estate investment<br>has its own risk and return profile as such an investor has to be rational in taking<br>decision that safeguard the investment under inflation period so to ensure<br>proper control of the outcome effect on the investor and the consumers of the<br>investment based on the fact that it involves huge outlay of both human and<br>capital input to carry out. The direct effect of inflation on real estate<br>investment which are not necessarily positive on the real value of housing is<br>that it induces nominal capital gains which are not real gains but are more the<br>less fixed when houses are sold. Another is that it affect housing process<br>particularly over the long term. Although rising housing prices can make it<br>look like the real estate market is improving. Prices, generally rise due to<br>the outcome of inflation where house that appear to appreciate in value with<br>time actually remain much the same when one consider the effect of inflation.<br>(Yobaccio <i>et al., </i>1995). According to<br>Piazzesi and Schneider (2007), other effect of inflation on real estate<br>investment is in form of rising interest rate (Mortgage rate), housing prices,<br>effect of supply and demand, inflationary construction and effect on new effect<br>of higher rent.</p><p>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; The<br>effect of inflation could be positive or negative or both on the side of the<br>investor and the occupant or tenants. This is what the research seeks to find<br>out which is to analyze the effect of inflation on direct real estate<br>investment and how it influences the rent of tenants/occupiers of the<br>investment on Uyo metropolis of Akwa Ibom State.</p><p><b>&nbsp;</b></p><p><b></b></p><b><p><b>1.2 &nbsp; &nbsp; &nbsp; STATEMENT OF PROBLEM</b></p><p><b></b></p><b><p>The present<br>state of the Nigerian economy caused by inflation has brought a deep concern to<br>many. This is based on the fact that inflation has led to the incessant<br>increase in the general price of goods and services within the country few<br>years back under inflationary trend up to the present day of which Uyo<br>metropolis is not an exemption from this.</p><p>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; In<br>relation to real estate development, inflation has contributed to increase in<br>prices of land and landed properties, cost of building materials, cost of land<br>documentation and processing by investors and developers in the country. As<br>such resulting to incessant high cost and variation in rent on developed<br>properties in different areas within the metropolis, And tenants who happens to<br>be the occupier of most of this developed properties are likely to face or<br>suffer the burden of high rent as a result of with inflation irrespective of if<br>they can afford it or not.</p><p>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; Therefore,<br>the research seek to evaluate the effect inflation has on rents of<br>tenants/occupier of direct real estate investment in Uyo metropolis.</p><p><b>&nbsp;</b></p><p><b></b></p><b><p><b>1.3 &nbsp; &nbsp; &nbsp; AIM AND OBJECTIVES OF THE STUDY</b></p><p><b></b></p><b><p><b>1.3.1 &nbsp; Aim</b></p><p><b></b></p><b><p>The purpose of<br>this study is to analyze the effect of inflation on direct real estate<br>investment and how it influences the rents of tenants/occupier of the<br>investments in Uyo metropolis.</p><p><b>1.3.2 &nbsp; Objective</b></p><p><b></b></p><b><p>The<br>main objectives of the research shall includes;</p><p>i. &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; <br>To identify the causes of inflation and<br>how it can be controlled</p><p>ii. &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; <br>To find out how inflation has influenced<br>changes in the rent of tenants/occupier of direct real estate investment and their<br>response to such change.</p><p>iii. &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; <br>To evaluate the effect of inflation on<br>direct real estate investment.</p><p><b>&nbsp;</b></p><p><b></b></p><b><p><b>1.4 &nbsp; &nbsp; &nbsp; RESEARCH QUESTIONS</b></p><p><b></b></p><b><p>This study<br>brings up some vital questions that should be answered during and at the end of<br>the research. They includes;</p><p>i. &nbsp; &nbsp; &nbsp; <br>What are the causes of inflation and how<br>it can be controlled?</p><p>ii. &nbsp; &nbsp; Does<br>inflation influences changes in the rent of tenants/occupier of direct real<br>estate investment and what are their responses to such change?</p><p>iii. &nbsp; What<br>is the effect of inflation on direct real estate investment?</p><p><b>1.5 &nbsp; &nbsp; RESEARCH<br>HYPOTHESIS</b></p><p><b></b></p><b><p>A<br>research hypothesis is simply a statement that shows if these is a relationship<br>with the different variables considered in the research. The variables to be<br>considered in the research are inflation, types of direct real estate<br>investment and rental value.</p><p><b>Null<br>hypothesis (</b><b>):</b><br>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; Inflation has no effect on<br>direct real estate investment in Uyo metropolis.</p><p><b>Alternate hypothesis (</b><b>):</b><br>Inflation has effect on direct real<br>estate investment in Uyo metropolis.</p><p><b>Null<br>hypothesis (</b><b>):<br></b>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; Inflation has effect on rents of<br>tenants/occupier of direct real estate investment in Uyo.</p><p><b>Alternate hypothesis (</b><b>):<br></b>Inflation<br>has effect on rents of tenants/occupier of direct &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; real estate investment in Uyo Metropolis.</p><p><b>1.6 &nbsp; &nbsp; &nbsp; SCOPE OF THE STUDY</b></p><p><b></b></p><b><p>The<br>direct real estate investment to be considered are basically commercial and<br>residential estate investment such as open hall, office space, and shops for<br>commercial investment and single room, two and three bedroom flat for residential<br>investments within four (4) locations in Uyo metropolis which includes:<br>Barracks Road, Oron Road, up to 4 lane, Uruan Street and Ikot Ekpene Road up to<br>Fly over.</p><p><b>1.7 &nbsp; SIGNIFICANCE<br>OF THE STUDY</b></p><p><b></b></p><b><p>The study would be significant to Government,<br>landlord/ property owners, real estate investors, tenants/occupiers,<br>researchers and general public.</p><p><b>Government</b>:<br>Government would benefit with the understanding of inflation and how it affect<br>the rent of tenants/occupier of property. This will guide their decision to<br>develop policy that would control rent and also inflation (monetary and fiscal<br>policies) in the economy to boost the growth of not only the real estate<br>investment but the economy as well.</p><p><b>Real Estate Investor:</b><br>Real estate investor would have a pre-knowledge that would guide their decision<br>to be prudent in understanding the rudiments surrounding when and how to invest<br>or borrow to carry out real estate investments in an inflationary economy in<br>order to make profit from the investment.</p><p><b>Landlord/Property Owners: </b>They<br>would equally benefit with the enlightenment on how to manage their<br>tenants/occupant of their property when taking decision on the placement of<br>rent change in order to hedge inflation and its effect as well as to avoid long<br>term vacancy on their property due to liability to pay rent by the tenant under<br>an inflationary economy.</p><p><b>Tenants/Occupier:<br></b>The<br>tenants/occupier would benefit with the knowledge on what transpire on real<br>estate investment in an inflationary economy mostly especially on the price and<br>rent of housing which would enable them to plan ahead of time in payment of<br>rent or investing in real estate.</p><p><b>General<br>Public:</b>&nbsp;The general public would be enlighten on what<br>inflation is about, its causes and effect on real estate investment as well as<br>the economy so as to enable them understand and to adapt to changes that may<br>occur in the real estate market.</p><p><b>Researchers/Student:<br></b>The<br>outcome of the research would be useful as additional information as well as a<br>source of reference to researchers and students of the estate management<br>profession whom would carry out further research into related topic of its kind<br>regarding inflation and real estate investment, inflation and its effect on<br>rents of tenants, inflation and the nature of property market etc in the<br>future.</p><p><b>1.8 &nbsp; &nbsp; &nbsp; STUDY AREA</b></p><p><b></b></p><b><p>Initially, Uyo<br>was a small village with a dispersed settlement pattern typically of the area.<br>It was thinly populated by peasant farmers. The advent area of Uyo was small as<br>at then covering not more than 16 square kilometer (Akwa Ibom State, 1989). Uyo<br>has a Local Government Headquarter in Cross Rivers State, Nigeria. With the<br>creation of Akwa Ibom State as a South-south geopolitical entity on 23rd<br>September, 1987, Uyo then assured the status of a state capital. This<br>transformation brought increase in population, human and economic activities<br>with gradual changes and increase in real estate development as a result of<br>rapid rate of urbanization.</p><p>Thestudy are of Uyo, Akwa Ibom State, Nigeria is located between<br>(112,000ms-118,000mn) and (604,000m – 610,000m) in the UTM zone of 32 and lies<br>between latitude 4o591- 5o05N and longitude 7o54<br>– 8o00E and the present Uyo urban area covers a total of 115,856 square<br>kilometer (Uyo Town Planning Authority, 2015) and bond by Nsit Ibom, Etinan and<br>Ibesikpo Asutan Local Government Area on the South, Uruan, Nsit Atai in the<br>East, Itu and Ibiono Ibom on the North and Abak as Ibiono Ibom on the West. The<br>area is located on an elevation of about 60.96 metres (209ft) above sea level.</p><p>The<br>territory is centrally located and has a special radial road system which<br>terminates at what is known as Ibom Plaza. The major roads from this system<br>spread through the main heart of the city giving rise to minor roads, streets<br>and paths. It is clearly accessible from other location, due to the renew<br>government investments on roads, travel line has been considerably reduced.</p><p>&nbsp;</p></b></b></b></b></b></b></b></b></b></b></b></b></b></b></b></b> <br><p></p>