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Risks Management in Real Estate Development

 

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Francis P. Udoudoh, PhD, RSV

Dept of Estate Management
University of Uyo

Akwa, Ibom State, Nigeria

 


 

ABSTRACT

Risk is a common feature in the construction industry and the process of its management is considered pertinent at different stages of real estate development process. Risk emanates from several sources which are categorized into internal and external sources. There are six major stages of project development (internal sources) and each stage has some peculiar risks associated with it. The research also identified environmental and neighbourhood risks (external sources) which range from environmental pollution, land degradation, flooding, and soil erosion to hostile nature of the host community to the project construction team. This research has shown that the prevailing risk sources depends on the project site, planning policies, building materials and workers on site, experience of site manager/engineer. It is pertinent to emphasis that the problems associated with risks in real estate development cannot be totally eliminated, therefore the need to adopt appropriate management strategies to eliminate or at least reduce the attendant effects on real estate development.

INTRODUCTION

Risk is a major element of real estate investment as in other investments. It is inherent in each project within the construction industry in different forms and at different stages of construction. It is a consequential of poor technology, economic condition, political situation and environmental factors such as topography and changing weather conditions. These factors constitute threats with attendant negative impact on the project execution. According to Ratcliffe and Stubbs (1996), risk is the very business of property development and uncertainty, the prevailing climate within which development takes place. As an investment, some properties have a high-risk profile while others have low profile. This depends on the type, nature, location and possibly, the lease term of the property. The goal of an ideal investor is to embark on any project or scheme that involves minimum risk with an expectation of maximum profit.

Risk may be examined on the basis of the fundamental components or sources of risk and making predictions on how future returns will be affected by each fundamental risk (Geddes, 2002). In any real estate investment setting, there are bound to be areas of concern but its extent would be a function of the responses of the investor. Elsinga and Hoestra (2005) identified environmental risks which are disasters that affect human lives and properties, as well as the values of such properties within a given environment, as a result of actions of man and some natural phenomenon. They listed such disasters as pollution, land degradation, flooding, soil erosion and atmospheric contamination. The pollution may come from air, water or noise pollution.

An investment is considered risky when the investor is not sure of the expected returns which he will realize from the investment. Investment options that are highly risky in nature needs to have high return potentials which can attract risk prone investors to venture into such areas of investment. Risk prone investors offer to take higher risk as against risk averse investors who hesitate to take certain risk. Over time, the variance of actual return from expected return can be measured and used to help determine probability level. The degree of variability of the actual return from the estimated return of investment as well as the possibility of loss of capital reflects the risk elements of investment (Ubom, 2010). This clearly indicated that where the degree of variability is higher, the risk involved in the investment is certainly higher and vice versa. Thus, the influence of risk on real estate investment have forced many property investors to adopt wrong development strategies which result in poor construction leading to collapse of several buildings and structures in different urban centres of Nigeria.

Since risk is a common feature of all forms of investment, the process of its management is considered the main stay of major development process. Risk management as it relate to real estate development is a collaborative effort to drive the project to the targeted goal through the process of identifying and evaluating the project at different stages with the aim of mitigating any risks that may cause harm to workers, damages to property, the project site and the surrounding environment.

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How to cite this paper: Udoudoh, F.P. (2020). Risks Management in Real Estate Development; PM World Journal, Vol. IX, Issue VII, July.  Available online at https://pmworldlibrary.net/wp-content/uploads/2020/06/pmwj95-Jul2020-Udoudoh-risks-management-in-real-estate-development2.pdf

 


 

About the Author


Dr. Francis P. Udoudoh

Associate Professor
Department of Estate Management
University of Uyo, Nigeria

 

 Dr. Francis P. Udoudohis an Associate Professor in the Department of Estate Management, University of Uyo, Nigeria. He holds a Diploma in Town and Regional Planning from the erstwhile Polytechnic, Calabar, Cross River State before proceeding to the premier University of Nigeria, Nsukka where he bagged a BSc degree in Estate Management; and later MSc and PhD with specialization in Real Estate Development Appraisal and Urban Infrastructure Economics.

He is an Associate Member of the Nigerian Institution of Estate Surveyors and Valuers, and registered with the Estate Surveyors and Valuers Registration Board of Nigeria (ESVARBON). Dr Udoudoh had served as editor of several research journals including the Journal of Nigerian Institution of Estate Surveyors and Valuers, Real Estate Journal, Journal of Environmental Design, and Artist Journal. He is a prolific writer who has published well over 55 articles in both local and offshore journals. He is the author of Real Estate and Infrastructure Economics in Nigeria and co-editor of Real Estate Development and Issues of Sustainability in Nigeria.

He was Head, Department of Estate Management (2015 – 2020), and later served as Vice Dean of Faculty of Environmental Studies in University of Uyo, Nigeria. He can be contacted at frankpee63@yahoo.com.

 

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