Case Study of Developing Economy
Using Nigeria Experience
FEATURED PAPER
By Innocent Franklin Makata
and
Prof. Nnamdi Alex Udobi
Department of Estate Management,
Nnamdi Azikiwe University
Awka, Nigeria
ABSTRACT
The global trend of investing in real property portfolios offers diversification, profitability, and a hedge against inflation. However, international investors encounter significant challenges in developing economies like Nigeria. Despite Nigeria’s attractiveness due to its large population, rapid urbanization, and growing middle class, factors such as political instability, corruption, economic volatility, limited access to finance, and complex legal and regulatory frameworks inhibit foreign investment. Political instability and insecurity create an unpredictable environment, while corruption and bureaucracy further complicate business operations. Economic dependence on oil and infrastructure deficiencies also poses substantial risks. Addressing these multifaceted challenges is crucial for maximizing the investment potential in Nigeria’s real estate market. Literature reveals both the opportunities and barriers for international investors, emphasizing the need for improved regulatory frameworks and infrastructure to attract and sustain foreign investment in Nigeria’s real property sector. The study investigates the perceptions of respondents regarding various factors influencing foreign real estate investment in Nigeria, focusing on political instability, legal framework, economic fluctuations, infrastructure inadequacy, and potential improvements. Analysis of survey data, including histograms, ogive curves, and statistical metrics such as mean weight and standard deviation, reveals key insights. A significant proportion of respondents hold negative views on political instability and policy changes with the highest frequencies in Strongly Disagree and Disagree categories. The mean weight of 2.63 and a standard deviation of 1.49 indicate a general tendency towards disagreement with moderate variation. Respondents predominantly disagree that Nigeria’s legal framework for property is clear and well-enforced, with a mean weight of 1.93 and a standard deviation of 1.34, reflecting a consensus on perceived regulatory inconsistencies and risks. There is prevalent disagreement that economic conditions and oil dependency positively impact the real estate market. The mean weight is 2.43, with a standard deviation of 1.52, indicating concerns about economic instability affecting investor confidence. The majority strongly agree that inadequate infrastructure is a major barrier to foreign real estate investment, with a mean weight of 4.53 and a standard deviation of 1.75, showing strong consensus on the need for infrastructure improvements. Respondents agree that improving political stability and legal regulations would boost investment, indicated by a mean weight of 3.6 and a standard deviation of 1.41, reflecting moderate agreement. There is strong agreement that diversifying the economy and improving infrastructure would enhance market stability and attractiveness, with a mean weight of 4.08 and a standard deviation of 1.60. The findings highlight significant concerns regarding political, legal, and economic factors, while emphasizing the importance of infrastructure improvements and economic diversification for attracting and sustaining foreign real estate investment in Nigeria.
Key words; Real property portfolio, Real estate market, Investment, Developing economy, Nigeria.
INTRODUCTION
Investing in real property portfolio has become a global phenomenon in recent years, as it offers diversification, profitability, and a hedge against inflation. However, international investors face numerous challenges in developing economies, such as Nigeria. This study seeks to examine the challenges of international investment in real property portfolio in Nigeria, using the country’s experience as a case study.
The real estate sector in Nigeria is an attractive investment destination due to its large population, rapid urbanization, and growing middle class. However, several factors inhibit foreign investors from exploiting the opportunities in the sector. According to Anifowose et al. (2019), the key challenges of international investment in real property portfolio in Nigeria include: Political instability and insecurity; Nigeria has a history of political instability and insecurity, which creates a high level of risk for business operations, including real estate investment. Nigeria has experienced periods of political unrest, which can make the investment environment unpredictable (Akinyemi, 2020). Corruption; bribery and corruption are prevalent in Nigeria, and they affect business operations, including real estate investment. The bureaucracy and lack of transparency in the regulatory framework of the sector can also increase the risk of corruption. The legal system in Nigeria can be difficult to navigate, and property rights are not always clear or enforced effectively (Udoekanem et al., 2014). Economic factors also play a critical role. Nigeria’s economy is heavily dependent on oil, making it vulnerable to global oil price fluctuations. This can lead to economic instability, affecting the real estate market (Okoro & Onu, 2013). Limited access to finance; the lack of access to finance is a significant challenge for real estate investment in Nigeria, particularly for foreign investors. The high-interest rates, inflation, and devaluation of the local currency make it difficult to obtain affordable financing. Legal and regulatory framework; the legal and regulatory framework governing real estate investment in Nigeria is complex and challenging to navigate. Additionally, infrastructure deficiencies such as unreliable power supply and poor road networks can hinder real estate development and reduce property values (Adetunji & Odugbesan, 2019). The lack of clarity in land ownership and usage rights, as well as inconsistent enforcement of laws and regulations, creates uncertainty and increases the risk of investment.
International investment in Nigeria’s real property portfolio faces numerous challenges that hinder its potential for growth and profitability. These challenges are multifaceted and deeply rooted in Nigeria’s socio-political and economic environment…
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How to cite this paper: Makata, I. F. and Udobi, N. A. (2024). Challenges of International Investment in Real Property Portfolio: Case Study of Developing Economy Using Nigeria Experience; PM World Journal, Vol. XIII, Issue VII, July. Available online at https://pmworldlibrary.net/wp-content/uploads/2024/06/pmwj143-Jul2024-Makata-Udobi-challenges-of-international-real-property-portfolio-investment-1.pdf
About the Authors
Innocent Franklin Makata
Ozoro, Delta State, Nigeria
Mr Innocent Franklin Makata holds BS.c, MS.c in Estate Management from Nnamdi Azikiwe University, Awka. He is currently a lecturer at Delta State University of Science and Technology, Ozoro, Delta Stat,e Nigeria. He has been published in some reputable journals. Mr. Makata can be contacted at makataif@dsust.edu.ng.
Prof. Nnamdi Alex Udobi
Awka, Nigeria
Prof. Nnamdi Alex Udobi is a Former Head, Department of Estate Management, Nnamdi Azikiwe University Awka. An Associate Member of Nigerian Institution of Estate Surveyors and Valuers (ANIVS) and a Registered Estate Surveyors and Valuers (RSV). He has published national and international journals. A Professor in Estate Management, Nnamdi Azikiwe University Awka. He is Principal Consultant at Alex Udobi and Company, a firm of Estate Surveyors and Valuers in Nigeria.
