Performance evaluation on aggregate bases of real estate in a mixed asset portfolio in Lagos

Abstract

This paper evaluates the performance of direct real estate in a mixed-asset portfolio, to ascertain whether the inclusion of real estate in the portfolio helps it perform better or not. Annual Transaction prices of government bonds, treasury bills, development stocks and commercial papers for a ten year period (2005-2014) were retrieved from the CBN bulletin. Annual rental values for commercial offices were collected through questionnaires administered on 220 out of 309 estate firms within the study location using simple random sampling technique. 165 questionnaires were returned and analyzed. The portfolio risk and returns were calculated with and without real estate to check performance at both levels. Correlation analysis was used to compare the strength of relationship and co-movement of assets. Findings show that real estate performed better than other assets giving higher returns though with higher risk. This can be attributed to the 2009 crash in the Nigerian stock market which made investors turn to real estate on the basis of security. However, correlation analyses of the assets revealed a moderately positive correlation indicating little or no diversification benefit. This paper recommends further study using direct and indirect real estate only to determine the level of performance on a risk and return basis.