Macroeconomic Dynamics and the Causal Effect on Residential Real Estate Investment Returns in Abuja and Lagos, Nigeria

Abstract

This study evaluated the performance of residential real estate investment and the causal linkages between important macroeconomic variables and real estate investment returns in Abuja and Lagos cities in Nigeria. A survey research design was employed using questionnaire to collect real estate transaction data from 2008 to 2022 from estate surveying and valuation firms in the study areas. The macroeconomic data used were retrieved from the archives of the Central Bank of Nigeria and National Bureau of Statistics. The rental and capital value data collected were used to construct rental and capital value indices using index number model and total returns on investment using holding period return model. Granger Causality test was employed to determine the causal effect of macroeconomic factors on residential real estate returns in the study areas. The finding of this study revealed among others that there was a progressive upward movement in rental and capita values of residential real estate investment in the study areas between 2008 and 2022. On the basis of total return and risk-adjusted return performances, residential real estate performed slightly better in Lagos with an average total return of 15.28% as against 15.20% in Abuja. On the other hand, Abuja performed better in terms of risk-adjusted return. Of the six macroeconomic variables analysed, only inflation rate, unemployment rate and real GDP per capita were found to have statistically significant causal effect on residential real estate investment returns in the study areas. The study recommended that whereas it is profitable for investors to invest their money in residential real estate in the study areas due to the positive rental and capital value growth potential, the government should implement economic policies that are capable of ameliorating the high rate of inflation and unemployment in the study areas.