Application of Quantitative Risk Assessment Techniques in Property Investment Appraisal in Enugu Urban, Nigeria

Abstract

Property investment projects are frequently subjected to unpredictable future, encompassing uncertainties and various forms of risks which impact the anticipated level of returns that should compensate for risks taken by investors. The level of sophistication in property investment risk assessment is quite elementary compared to other investment media. This state of affairs has led to project failure and loan default by the investors. The principal aim of this paper is to investigate the extent of application of quantitative risk analysis techniques in property investment appraisal by Estate Surveying and Valuation Firms in Enugu Urban. In addition, the paper examines some quantitative risk analysis techniques. The study surveys top management in the estate Firms. The main sources of data and information for the research comprise literature review and empirical survey. For empirical survey, data was collected via in-depth interview and structured questionnaire. The study briefly examined sensitivity analysis, scenario technique, decision tree procedure, Monte Carlo simulation, risk-adjusted discount factor (RADF) model, sliced income approach, certainty equivalent cash flow, standard deviation and modern portfolio theory. Results from the survey show that most Firms do not apply quantitative risk assessment techniques; risk assessment is largely handled in a subjective manner. However, few Firms apply sensitivity analysis and risk adjusted discount rate methods. Generally risk analysis in property investment appraisal has remained relatively under-researched in Nigeria. Only limited research is available. Keywords: Risk, Uncertainty, Quantitative Risk Assessment, Investment Appraisal, Property Investment, Enugu Urban.