Analysis of Co-Movement of Direct Commercial and Residential Real Estate Investment Returns in South Eastern Nigeria (2000-2013)

Abstract

This study enquired about the nature of co-movement of direct commercial and residential real estate investment returns because the two real estate sectors have not been taken together in a co-movement study in Nigeria. It also identified the implication of the co-movement in the construction of real estate portfolios by investors. The study is an empirical research with a survey research design. Primary data were collected by questionnaire and interview from firms of estate surveyors and valuers in eight cities in seven states of South Eastern Nigeria. A judgment sampling approach was adopted and a sample size of 100 buildings each of commercial and residential real estate investment was drawn for analysis in each city studied from 2000 to 2013. At city level, Calabar and Onitsha produced the maximum (22.15%) and minimum (12.5%) mean returns respectively on commercial real estate investment while Owerri and Awka produced the maximum (19.42%) and minimum (8.54%) mean returns on residential real estate investment. At the regional level, commercial sector produced higher (16.62%) mean returns than the residential sector (14.93%). The correlation structure at the city level revealed negative co-movement in opposite direction and positive co-movement in the same direction. All the negative and positive correlations are low implying that there is room for diversification by way of investors constructing portfolios of commercial or residential or both sectors of real estate investments. At the regional level, the correlation produced a low positive co-movement though significant. All the positive and negative correlations at city and regional levels can contribute effectively to the construction of portfolios that will increase returns and reduce risk because there is no strong or perfect positive co-movement.