This study aims at examining the diversification and inflation-hedging potentials of both direct and indirect real estate investments in Nigeria from 2005 to 2014 this is with a view to providing information for investment decisions. DESIGN/METHODOLOGY/APPROACH: Secondary data on rental/capital values of direct real estate investments covering an average total of 1,587 residential properties was obtained from the records of 5 Estate Surveying and Valuation Firms in Gombe. Similarly, the dividend and share prices of the indirect real estate investment were also collected from the data bank of the Nigerian stock exchange. These data were subsequently translated to holding period returns. Furthermore, secondary data with respect to the Nigerian Consumer Price Index (CPI) which was used as a proxy for actual inflation for the study was collected from the National Bureau of Statistics (NBS). These data groups were used to calculate the asset and portfolio returns as well as the asset and portfolio risks of the selected assets. Furthermore, both descriptive and inferential statistics were used to determine the diversification and inflation-hedging potentials of the selected investment assets. This involved the use of weighted means, Pearson Product Moment Correlation and the Ordinary Least Square Regression. FINDINGS: The study revealed that investment in direct property provided the highest returns (22.48%) as well as the highest level of risk (8.71548%) over the study period. The study further showed that only the direct property investment demonstrated the existence of diversification potential. Similarly, among the two selected asset classes only direct property showed complete inflation-hedging potential with beta 0.082, while indirect property showed a beta of-0.126, suggesting a perverse hedging characteristics. PRACTICAL IMPLICATIONS: Diversification and Inflation-hedging potentials of investment asset classes is of particular interest to investors. The results of this study can be useful for investment forecasts as well as investment decisions on asset types to include in portfolios as a measure for protecting investors' earnings from erosion by inflation and a means of enjoying diversification benefits thereby improving the performance of the investment portfolio. ORIGINALITY/VALUE: Research work on the subject of diversification and inflation-hedging in Nigeria were majorly conducted in isolation. This study expanded the scope of the diversification and inflation-hedging literature by empirically investigating both investment indicators in a comparative context.
PURPOSE: Despite increasing trends of cross-continental property investment, foreign direct and indirect investment in Africa is disproportionately low regardless of the huge population and huge real estate demands on the continent. The JLL (2012, 2014) suggested that this is due to lack of information on the direct and indirect real estate investment opportunity (returns, risk and diversification potential) on the continent. The paper accordingly aimed to investigate the risk-return performance of direct and indirect property investments in Nigeria visa -vis those of the US, with a view to providing information that would serve as a preliminary guide for Asian, US and other international investment decision making. Nigeria was offered as an example of an African country with huge population and low foreign investment, while the US was offered as an example of a country/region actively involved with cross regional real estate investment that largely excludes Africa. METHODS FOLLOWED: Direct and indirect commercial property data in the US were obtained from the NCREIF (2015) and: FTSE NAREIT (2015) indices respectively. Data on indirect property in Nigeria was obtained from the Nigerian Stock Exchange while data on direct commercial property in Nigeria was obtained from total enumeration surveys of real estate firms. This direct property data was de-smoothened to ensure compatibility with indirect data. FINDINGS: Analysis of findings of the study revealed that Nigerian direct and indirect property outperformed US direct and indirect property investments in terms of both total return and risk-adjusted return in addition to demonstrating considerable diversification potential. Theoretical and Practical Implications. The paper has implications for the stimulation of direct and indirect property investment in Africa which currently lags the rest of the world in this regard. Originality: The paper is one of the first to empirically and comprehensively investigate investment potentials of African and non-African real estate.
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