IMPACT OF INFLATION OF RENTAL VALUES OF COMMERCIAL PROPERTIES IN JOS, NIGERIA
ABSTRACT
This study aimed at assessing the impact of inflation on rental values of commercial properties in Jos metropolis. Rental values and Inflation were examined. Pertinent Literatures were reviewed on the subject matter and data were collected which included both primary and secondary data. Questionnaires were administered, with oral interviews and field survey. The trend in rental values and inflation was examined for the study period, 1990-2014. It is important to state that the type of commercial properties analyzed in the study locations were basically shops and offices. The collected data were analyzed using descriptive statistical techniques, Analysis of Variance (ANOVA) and Regression analysis. The results show that unexpected inflation affects the rents of commercial properties in Jos by 15.5% this shows that commercial property is a good hedge against inflation. It is recommended that NIESV Jos branch should ensure that for every location, there should be a range of rent per meters square so as to avoid over pricing of rent by the landlords.
TABLE OF CONTENTÂ Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â PAGES
Title page
Declaration                                                                                                                            ii
Certification                                                                                                                          iii
Dedication                                                                                                                            iv
Acknowledgements                                                                                                              v
Abstract                                                                                                                                vi
Table of content                                                                                                                    vii
List of tables                                                                                                                         xi
List of figures                                                                                                                       xii
CHAPTER ONEÂ Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 1
1.0 Introduction                                                                                                                   1
1.1 Background of the study                                                                                                1
1.2 Statement of the problem                                                                                               3
1.3 Aim and Objectives of the study                                                                                    3
1.4 Research Questions                                                                                                         4
1.5 Research Hypothesis                                                                                                       4
1.6 Scope of the study                                                                                                                      4
1.7 Significance of the study                                                                                                5
1.8 Limitation of the study                                                                                                   5
1.9 Geographical Location of the Study Area                                                                      5
1.10 Population and Economic base of the study area                                                         6
1.11. Tourism and Religion                                                                                                   7
CHAPTER TWOÂ Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 12
2.0 Literature Review                                                                                                           12
2.1 Commercial property investments and rental growth expectations of investors
in Nigeria                                                                                                                            13
2.2. Inflation                                                                                                                         13
2.2.1 Categories of inflation                                                                                                  14
2.2.2 Types of inflation                                                                                                         16
2.2.3 The general effect of inflation                                                                                    17
2.2.4 Inflation control                                                                                                           18
2.3 Concept of rent                                                                                                               19
2.4.1 Rental value                                                                                                                 20
2.4.2 The Bid Rent Theory                                                                                                   20
2.4.3 Modern Theory of Rent                                                                                               21
2.5 Types of Rent                                                                                                                 21
2.6 Factors determining rental value                                                                                     22
2.7 Concept of Property                                                                                                       23
2.7.1 Classes of Property                                                                                                      24
2.7.2 Types of Property                                                                                                        25
2.7.3 Commercial Properties                                                                                                 27
2.7.4 Types of Commercial Properties                                                                                  27
2.8. Empirical Review                                                                                                           29
CHAPTER THREEÂ Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 32
Research Methodology                                                                                                         32
3.1 Population for the Study                                                                                                32
3.1.1. Sampling Frame                                                                                                          32
3.1.2 Sampling Element                                                                                                        32
3.2 Sampling Technique                                                                                                        32
3.3 Sampling Size                                                                                                                 32
3.4 Methods of Data Collection                                                                                           33
3.5 Sources of Data Collection                                                                                             34
3.6 Data Handling Techniques                                                                                             34
CHAPTER FOURÂ Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 36
Data Presentation, Analysis and Discussion of Results                                                       36
4.1 Data for the Study                                                                                                                      36
4.2. Rental Levels of Commercial Properties in Jos Metropolis from 1990-2014.               37
4.3. Analysis of Data                                                                                                            39
4.3.1. Rental Growth of Commercial Properties in Jos                                                        44
4.3.2. Rental Growth of Shops                                                                                             44
4.4. Analysis of Variation in Rent/m2 Across Commercial Properties in Jos. Â Â Â Â Â Â Â Â Â Â Â 46
4.5. Inflation Rate in Nigeria.                                                                                               47
4.6. An Extermination of the Effect of Inflation on Rents of Commercial
Properties in Jos.                                                                                                                   50
Testing of Hypothesis                                                                                                           56
4.7. Discussion of Results                                                                                                     56
4.7.1 Examine the Rental Levels of Commercial Properties in the Study Area.                  56
4.7.2 Determine the Variation in Rent Across Commercial Properties
(Shops and Offices)Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 57
4.7.3 Examine the Trend of Inflation Rate in Nigeria. Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 57
4.7.4 Examine the Effect of Inflation on Rents of Commercial Properties in Jos.              57
CHAPTER FIVEÂ Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 58
Summary of Findings, Conclusion and Recommendations                                                  59
5.1 Summary of Findings                                                                                                     59
5.2 Conclusion                                                                                                                      60
5.3 Recommendations                                                                                                                      61
Reference                                                                                                                              62
Appendix                                                                                                                              64
LIST OF TABLES
Table 3.3: Number of Questionnaires Administered and Retrieved                                        33
Table 4.1A: Average rental values of commercial properties in the various locations
in the study Area                                                                                                                     37
Table 4.2.: Statistics on Rent/m2 for Shops                                                                             40
Table 4.3.: Statistics on Rent/m2 for offices                                                                           41
Table 4.4A: Average Rental Growth Rate of Rental Values of Commercial Properties
in Jos (1990 – 2014)Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 42
Table 4.5.: Test of Homogeneity of Variances                                                                         46
Table 4.6.: Analysis Of Variance (ANOVA)Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 47
Table 4.7: Correlation of actual, expected and unexpected inflation rate                              49
Table 4.8: Regression result for Shop Rent and Inflation Rates (Group 1)Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 50
Table 4.9: Regression result for Shop Rent and Inflation Rates (Group 2)Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 51
Table 4.10: Regression result for Shop Rent and Inflation Rates (Group 3)Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 52
Table 4.11: Regression result for office Rent and Inflation Rates (Group 1)Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 53
Table 4.12: Regression result for office Rent and Inflation Rates (Group 2)Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 54
Table 4.13: Regression result for office Rent and Inflation Rates (Group 3)Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 55
Table 4.14: Regression Result for Average Commercial Property Rent and Unexpected
 Inflation Rates     56
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LIST OF FIGURES
Fig. 1.1: Nigeria showing Plateau State                                                                               8
Fig 1.2: Plateau State                                                                                                           9
Fig1.3: Google earth map of study area.                                                                               10
Fig 1.4: Location Map of the study area                                                                               11
Figure 4.1: Rental Growth of Shops in Jos                                                                           44
Figure 4.2: Rental Growth of Offices                                                45
Figure 4.2: Trend in the Inflation Rate in Nigeria                                                                 4
1.1 Â Â Â Â Â Background of the study
Property 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.
The 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).
