IMPACT OF INFLATION ON RENTAL VALUES OF COMMERCIAL PROPERTIES IN JOS, NIGERIA
1. Introduction 1.1 Research Background
Real estate investment is considered a highly profitable investment for most countries’ economies and is recognized as an inflation hedge, making it an important investment option that gives investors the courage to invest. Unlike other asset classes, commercial real estate is a type of property owned to generate income. It is a heterogeneous, physically modifiable, segmented asset that is treated separately (Hendershott et al., 2000). It houses most of the places where economic activity takes place within the economy. As fixed assets, they represent the means by which investors accumulate wealth. According to Ibottson and Associates (2001), commercial and real estate accounts for more than half of the world’s economic wealth.
The economy of Jos has evolved from agriculture and tourism driven to business driven. The Jos property market is considered to be doing well in the sense that real estate investments on commercial properties in the area have “been particularly strong and have generated enormous capital gains for their owners”. It is an important part of the landscape of the city, serving both the business and financial aspects of the place, thus contributing significantly to the growth of real Gross Domestic Product (GDP).
Additionally, the office market receives a lot more attention from most practitioners compared to the contracting sector of real estate. This is because the office market is generally well-established, with fairly regular transactions over a long period of time, and most are considered better geographically located than other real estate classes. (Higgins & Valence, 2000).
There is no specific place called the real estate market because of its characteristics. The characteristics of these properties usually make it difficult to set a uniform price for similar properties, even if they are nearby.Commercial real estate prices are where most real estate decisions are made. They often fluctuate as they are driven by forces inside and outside the market. Property returns come from both internal and external factors such as gross domestic product, inflation, exchange rates and interest rates. Various asset classes carry many risks, and inflation is recognized as one of the threats that can undermine commercial real estate performance. (Bryan et al., 1997) believe that inflation is related to an increase in the money supply in the economy, which can be called “currency inflation” to distinguish it from “price inflation”, which is the rise in commodity prices. increase. in the country. In other words, the term inflation may simply relate to a general price level increase that has a persistent, non-seasonal character. Problems can arise during inflation if unexpected inflation occurs suddenly. H. Increases in the prices of goods and services do not adequately correspond to increases in personal income of individuals.
The rent of each commercial property is an important cost factor for tenants, a source of income for landlords and an indication of the development of the real estate market. Participants in this market category such as B. Developers use this as a measure of return on investment. The economy-specific inflation rate is driven by both the economy’s intrinsic and extrinsic factors that directly affect the real estate market. always a good investor
1.2 Problem Description
It is true that real estate investments now generate a lot of profit from sale and rental values, encouraging many asset investors to enter real estate development. This has led many property investors to develop more properties and modify and beautify existing properties. As in other developing countries, the Nigerian economy has seen significant changes in prices of goods, labor costs and service charges due to expected and unanticipated inflation. Against this backdrop, commercial property owners (landlords) intimidate tenants by setting arbitrary rents without considering supply and demand factors.
It’s amazing how commercial property rentals are validated today. A proper and comprehensive study must be conducted to adequately consider the impact of inflation on commercial property rental values in the study area and to find permanent solutions to the aforementioned problems.
This study extinguishes and assesses the extent to which changes in inflation rates in the economy affect commercial property rental values, and also determines whether commercial property is a good hedge against inflation in the study area. focus on.
1.3 Purpose and objectives of the research
The purpose of this study was to assess the impact of inflation on commercial real estate rental values in Jos, Plateau from 1990 to 2014. The purpose of this research is to:
1. Find out the rental levels of commercial real estate in your study area.
2. Find the change in rents between commercial properties (shops and offices) in Jos, State of Plateau from 1990 to 2014.
3. Examine Nigeria’s inflation rate trends during the study period.
4. Examine the impact of inflation on commercial property rents in metro Jos from 1990 to 2014. 1
1.4 Research question
1. How are commercial property rents increasing? Do commercial property rents vary across study areas?
2. Is the Treasury bill a good indicator of inflation expectations? 3. Is commercial real estate protected against expected and unexpected inflation?
1.5 Research hypothesis
Null Hypothesis (H0):
There is no statistically significant relationship between unexpected inflation rates and commercial (shop and office) real estate rental prices in Jos, Plateau from 1990 to 2014.
Alternative hypothesis (H1):
From 1990 to 2014, Jos, Plateau has a statistically significant relationship between unexpected inflation and commercial real estate (shops and offices) rents.
1.6 Scope of investigation
The study is primarily limited to the impact of inflation on rental prices of commercial properties in Jos Metropolis from 1990 to 2014. This is expressly limited to retail and office properties. This survey attempts to limit itself to shops and offices, as they are the most common type of commercial property in the study area, from which more information can be obtained.
Ajayi (2000) states that extensive research must be consulted to ensure that reasonable and generalizable conclusions are reached.
1.7 Validity of research
The study is relevant to the government and various actors in the Nigerian real estate sector as it assesses the impact of inflation on rental values of commercial properties in Jos. It provides us with more information and facts about inflation in the study area and its impact on commercial property rental values. Investors, property appraisers and appraisers can therefore better understand inflation and how it affects the overall rental value of commercial properties in Jos and Nigeria. Additionally, it helps contribute to the body of knowledge built by other researchers in the field.
1.8 Limitations of the study
Initially, this work was limited to the first floor for shops and the first floor for offices. Also, there were some challenges during the data collection process. Some companies did not fill out all the questions, and others did not return the questionnaire.
1.9 Geographic location of the study area
The Plateau State is located in the north-central and middle belts of Nigeria. It lies between 80 degrees 24 minutes north latitude and 80 degrees 32 minutes east longitude and 100 degrees 38 minutes east longitude. The northern part of the state is mostly rocky, consisting of hills and many attractive rock formations. It is about 179 kilometers (111 miles) from the country’s capital, Abuja. Jos is connected to the rest of the country by road, rail and air. At an altitude of 1,217 m (3,993 ft) above sea level, it has a warmer climate than most of Nigeria’s states, with an average monthly temperature of 21-25 °C (70-77 °F). However, this temperature he varies from mid-November to late January, with overnight temperatures he dropping to 11°C (52°F), with chilly and chilly nights. Due to its high altitude and cool weather, Jos receives approximately 1,400 millimeters (55 inches) of rainfall annually as a result of the city’s location on the Jos Plateau.
1.10 Population and Economic Base of the Study Area
The Highlands State is called Little Nigeria mainly because almost all Nigerian languages are spoken there. Plateau State has over 50 languages. These include:
Berom, Fish, Tarok, Arago, Goemai, Mada, Nwagavur, Gbagi, Egan, Yun, Montor, Gwandara, Mapun, Chip, Lindre, Bagom, Egbra, Hausa, Fulani, Kambari, Bassa, Afo, Fuller, Taro, Geomai, Fier, Boogie, Misip, Piem, Chara, Roncala, Affizel, Miango, Yum, Bogohom, Rukumba, Piapun, Kwala, Montol, Jukung, Ninzam, Koro, Gade, Amo, etc.
The highlands are best known for mining and agriculture. Sorghum, maize, acha (a grain known as ‘Hungarian rice’), potatoes, cowpeas, rice, fruits, vegetables and millet are the staple foods of the region. The Plateau State is Nigeria’s major mining region and is known for its large exports of tin and columbine. It can be said that Kowon Province has many professional occupations such as business and art. There is usually a high percentage of commercial activity due to the weather that attracts people and investors. This is evidenced by the presence of large companies such as Coca-Cola and Nasco.
1.11. tourism and religion
The Plateau State is known as the home of peace and tourism and has the following tourist attractions:
Wildlife Safari Park, Shea Hills, National Museum, Asop Falls, Kula Falls, Wase Rock, Lyom Rock and more.
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