IMPACT OF INFLATION ON RENTAL VALUES OF COMMERCIAL
PROPERTIES IN JOS, NIGERIA
ESTATE MANAGEMENT AND VALUATION
1.1 Background of
investment has been considered as an investment that is very lucrative in the
economy of most nations and it is a major investment option that gives
investors the courage to invest because it is recognized to have inflation
hedge. Unlike other assets class, commercial properties are types of properties
that are owned to generate income. It is heterogeneous, physically modifiable
and segmented asset which is treated separately (Hendershott et al.,
2000). It houses most locations where
economic activities take place within an economy. As an investment asset, it represents a means
for accumulation of wealth by investors. According to Ibottson and Associates
(2001), commercial properties and real estate constitute more than half of the
economic wealth in the world.
economy of Jos has grown significantly well from an agrarian and tourism driven
to a business oriented one. The property market of
Jos is assumed to be doing well in the sense that property investments with
reference to commercial properties in this area has become `particularly strong
and generated huge capital profit to its owners. As commercial
properties are important part of Jos landscape, which service both the business
and financial aspects of the locality, it contributes immensely to the growth
of real Gross Domestic Product (GDP).
addition, the office market has been given a lot of attention by most
practitioners as compared to order sectors of property. This is because, the
office market is usually seen to be well established with quite regular
transactions over a long term and mostly has good geographical locations than
some other property class (Higgins & Valence, 2000).
is no particular place referred to as the real estate market due its
characteristics. These property characteristics usually make it difficult for a
uniform price to be fixed on properties of the same type even if they are
located close to each other. The prices of commercial properties are often
volatile due to the fact that they are determined by the market’s internal and
external forces within which most property decisions are made. The yields from
real property are arrived at by both internal and external factors such as
gross domestic product, inflation, exchange rate and interest rate.
are a lot of risks involved in different asset class and inflation is said to
be one of those threats which can affect the performance of commercial properties.
(Bryan et al., 1997) is of the view that inflation has to do with the
increase in money supply in an economy which may be referred to as ‘monetary
inflation’, as distinct from ‘price inflation’ which is an increase in the
price of commodities in a country. In other words, the word inflation can
simply be referred to any increase in the general level of prices which is
sustained and non-seasonal in character. Problems can arise during inflation
when we suddenly experience an unexpected inflation which is when the increase
in prices of goods and services does not adequately match with the rise in
individual’s personal income.
rent of every commercial property is regarded as a major cost to the lessee and
an object of generating revenue to the lesser and it also shows the performance
of the real estate market. Participants in this category of market such as
developers use it as a measure of the viability of their investment. The
inflation rate inherent in the nation’s economy is caused by both the endogenous
and exogenous factors to the economy which has a direct effect on the property
market. A good investor always want to put his money where it is guaranteed to
a large extent so therefore they tend to invest in inflation-proof businesses
such as the property investment. From the perspective of a tenant however, his
major aim is to be able to afford his rent and still have something reasonable
to take home as profit from the income he generates. Such is made possible if
he enjoys a subsidized rent from his lease.
1.2 Statement of
It is a reality that real estate
investment now yields a lot of return from its sales and rental value which has
encouraged lots of asset investors to go into real estate development. This has
resulted in making many asset investors to develop more properties and also
modify and beautify the already existing properties. Just like other developing
countries, the Nigerian economy has also been experiencing a lot of changes in
prices of its commodities, labour and service charge as a result of expected
and unexpected inflation. In the light of this however, commercial property
owners (landlords) extort their tenants by fixing rents arbitrarily without due
consideration of the demand and supply factors.
Nowadays, the way and rate commercial
property rents are been reviewed is alarming. Adequate and comprehensive
research needs to be carried out to properly consider
the impact of inflation on the rental values of commercial properties in
the study area and perhaps find a lasting solution to the stated problem.
This research focuses on the
extermination and assessment of the extent to which the changing inflation rate
in the economy affects the rental values of commercial properties and to
further determine whether commercial properties are good hedges against
inflation in the study area.
1.3 Aim and
Objectives of the Study
This study aimed at assessing inflation
impact on the rental values of commercial properties in Jos, Plateau State from
1990 - 2014, while the objectives of the study are to:
1. Examine the rental levels of
commercial properties in the study area.
2. Determine the variation in rents
across commercial property (shops and offices) types in Jos, Plateau State from
1990 to 2014.
3. Examine the trend of inflation rates
in Nigeria over the study period.
4. Examine the effect of inflation on
rents of commercial properties in jos metropolis, from 1990 to 2014.
What are the trends in rental value of commercial properties? Do commercial
property rents vary across the study area?
Is Treasury bill a good proxy for expected inflation?
Does commercial property return hedges expected and unexpected inflation?
hypothesis (H0): There is no statistical
significant relationship between Unexpected Inflation rate and rental values of
commercial properties (shops and offices) in Jos, Plateau State from 1990-2014.
hypothesis (H1): There is statistically significant
relationship between Unexpected Inflation rate and rental values of commercial
properties (shops and offices) in Jos, Plateau State from 1990 – 2014.
1.6 Scope of the
study is limited mainly to the impact of inflation on rental values of
commercial properties in Jos Metropolis from 1990 to 2014. It is specifically
limited to shop and office properties. This research work seeks to be limited
to only shops and offices because, they are the most common types of commercial
properties in the study area and more information can be gotten from them.
ensure that we arrive at a reasonable conclusion that can be generalized, Ajayi
(2000) stated that a wide range of studies should be used as it can provide a
strong basis for a thorough comparative analysis.
of the Study
This study will be of significant to the
government and the various players in the Nigerian real estate sector as it assesses the
impact of inflation on rental values of commercial properties in Jos. It would give
us more information and facts on inflation and how it affects the rental values
of commercial properties in the area of the study. Hence, exposing investors,
estate surveyors and valuers to understand inflation better and how it impact
on the rental value of commercial properties in Jos and Nigeria at large. In
addition, it will also help in contributing to the wealth of knowledge
established by other researchers in this area.
1.8 Limitation of the Study
First of all this work was limited on
the ground floor for shops and 1st floor for offices. Also I had
some challenges during the course of data collection because some firms didn’t
fill the complete questions while others did not even return the
1.9 Geographical location of the Study Area
State is situated in the North-central and the middle belt zone of Nigeria. It
is lying between latitude 80°24'N and longitude 80°32' and 100°38' east. The
northern part of the state is mostly rocky consisting of hills and lots of
captivating rock formations. It is about 179 kilometres (111 miles) from Abuja,
the nation's capital city. Jos is linked by road, rail and air to order parts
of the country. At an altitude of 1,217 m (3,993 ft) above sea level
and enjoys a more temperate climate than most part of the states in Nigeria
with an average monthly temperature ranging from 21–25 °C (70–77 °F).
This temperature is however different from mid-November to late January
bringing about a night-time temperature drop to as low as 11 °C
(52 °F), resulting in cool or cold nights. Owing to the cool high-altitude,
the weather of Jos receives about 1,400 millimetres (55 inches) of rainfall
annually arising from the precipitation due to the location of the city on the
1.10 Population and Economic base of the Study Area
State is said to be a small Nigeria primarily because nearly all the languages
of Nigeria are present there. There are more than 50 languages in Plateau
state. These include: Berom, Ngas, Tarok, Alago, Goemai, Mada, Nwaghavul,
Gbagyi, Eggan, Youn, Montol, Gwandara, Mapun, Chip, Rindre, Bagghom, Egbura,
Hausa, Fulani, Kambari, Bassa, Afo, Fler, Taroh, Geomai, Fier,
Bugi, Miship, Pyem, Challa, Ron-kulere, Afizere, Miango, Youm, Boggohom,
Rukumba, Piapung, Kwalla, Montol, Jukun, Ninzam, Koro, Gade, Amo and so on.
Plateau state is best known for
its mining and agricultural activities of the peoples. Sorghum, maize, Acha (a
grain known as “Hungary rice”) potatoes, cowpeas, rice, fruits, vegetables and
millet are the main staple crops of the area. Plateau state is an important
mining area in Nigeria and is known for its major export of
tin and columbine. Plateau state can also be described as a state with lots of
vocational jobs such as businesses and arts. It has high rate of commercial
activities due to its weather which usually attracts people and investors. This
can be seen by the existence of large industries such as coca-cola and Nasco
1.11. TOURISM AND RELIGION
State is known as The Home of Peace and Tourism with the following tourist attractions: Wildlife Safari park, Shere hills, National Museum, Assop falls, Kurra
falls, Wase rock, Riyom rock and others.