Impact of inflation on commercial property value in Nigeria





Inflation is seen to be persistent rise in the general price level of goods and services in a country over a long period of time. It can be described as a decline in the value of money or an increase in the quality of money in circulation, leading to a decline in the purchasing power of existing money (Zou et al., 2011). To say that inflation status in most advance economics is moderated to be a single digit level is to restate the obvious. Considering the emerging economic, inflation is mostly in a two digit figure (Nwude, 2012). For instance, in Nigeria, which is the concern of the study, inflation rate averaged 12.34% from 1996 until 2014, reading on all time high of 17.56 in the beginning of the Year 1996 and a record low of 2.49% in the beginning Year of 2000 (Trading Economic, 2014). Currently inflation rate is up to 18.42% in Nigeria. Temgbode (2011) is of the opinion that this is role that the inflation rate in Nigeria is outstripping the rate of return on the investments.

Inflation in relation to real estate are of various type; actual, expected and unexpected. The actual inflation is the rate of increase in price over a given period, (Oner, 2012); the expected inflation refers is change in price level that is expected at the starting time of an asset or when the asset is appraised. (Appraised Institute, 2008). The difference between the actual and the expected inflation is seen to be the unexpected inflation which are all measured using the Consumer Price Index (CPI) and the producer price index (PPI)>

A situation under inflation where the inflation rate of some assets are higher than the consumer  price index (CPT), it  suggests  that  those  assets  are  hedge  against  inflation and as such real estate investments is one of them with greater advantage to other investment (Bello, 2004).

Real estate investment is simply the acquisition, ownership, management, rental and sales of direct real estate investment (land and building) and indirect real estate investment (real estate securities) which are the various ways of investing in real estate (Amidu and Aluko, 2016).  According to Garay and Tor Horst (2009), investment in real estate can be done in different ways; (a) Equity where one can invest in the equity part of real estate by buying real estate mutual funds, example, (REITS) (b) debts where one invest in the debts part of real estate through securitized form and lastly by acquiring real estate physically.

The ability of real estate invested asset to provide high rate of returns above the rate of inflation is concerned to investors. This is known as inflation hedge which is provided when the returns on investment increases at a commensurate or higher rate than general price level or increase (Glascock et al., 2005). In other words, the investment could be expected to hedge against inflation through the income produced, capital appreciation or the combination of both which is predicated on the fact that the two basic reason why an investor would want to hedge against inflation is first to match future liabilities that are linked to inflation and secondly to protect the value of an investment (Martin, 2010).

Real estate investment asset have long been recognized as a good hedge against inflation. (Feng et al., 2003; Down 2009, Bello 2004; Debera 2014). The direct real estate investment provide a good hedge against inflation than the indirect real estate investment (Amidu and Aluko 2006; Georgier 2012; Yobaccio 1995; Amidu et al., 2008; Karley 2009; Miles and Mahoney 1997). Others view that the indirect also provides an hedge against inflation. (Maorer and Sebastian 2002, Lu and So 2001; Chatrath and Long 2008).

Real estate investment has its own risk and return profile as such an investor has to be rational in taking decision that safeguard the investment under inflation period so to ensure proper control of the outcome effect on the investor and the consumers of the investment based on the fact that it involves huge outlay of both human and capital input to carry out. The direct effect of inflation on real estate investment which are not necessarily positive on the real value of housing is that it induces nominal capital gains which are not real gains but are more the less fixed when houses are sold. Another is that it affect housing process particularly over the long term. Although rising housing prices can make it look like the real estate market is improving. Prices, generally rise due to the outcome of inflation where house that appear to appreciate in value with time actually remain much the same when one consider the effect of inflation. (Yobaccio et al., 1995). According to Piazzesi and Schneider (2007), other effect of inflation on real estate investment is in form of rising interest rate (Mortgage rate), housing prices, effect of supply and demand, inflationary construction and effect on new effect of higher rent.

The effect of inflation could be positive or negative or both on the side of the investor and the occupant or tenants. This is what the research seeks to find out which is to analyze the effect of inflation on direct real estate investment and how it influences the rent of tenants/occupiers of the investment on Uyo metropolis of Akwa Ibom State.


The present state of the Nigerian economy caused by inflation has brought a deep concern to many. This is based on the fact that inflation has led to the incessant increase in the general price of goods and services within the country few years back under inflationary trend up to the present day of which Uyo metropolis is not an exemption from this.

In relation to real estate development, inflation has contributed to increase in prices of land and landed properties, cost of building materials, cost of land documentation and processing by investors and developers in the country. As such resulting to incessant high cost and variation in rent on developed properties in different areas within the metropolis, And tenants who happens to be the occupier of most of this developed properties are likely to face or suffer the burden of high rent as a result of with inflation irrespective of if they can afford it or not.

Therefore, the research seek to evaluate the effect inflation has on rents of tenants/occupier of direct real estate investment in Uyo metropolis.



1.3.1    Aim

The purpose of this study is to analyze the effect of inflation on direct real estate investment and how it influences the rents of tenants/occupier of the investments in Uyo metropolis.

1.3.2    Objective

The main objectives of the research shall includes;

i. To identify the causes of inflation and how it can be controlled

ii. To find out how inflation has influenced changes in the rent of tenants/occupier of direct real estate investment and their response to such change.

iii.To evaluate the effect of inflation on direct real estate investment.



This study brings up some vital questions that should be answered during and at the end of the research. They includes;

i.        What are the causes of inflation and how it can be controlled?

ii.      Does inflation influences changes in the rent of tenants/occupier of direct real estate investment and what are their responses to such change?

iii.    What is the effect of inflation on direct real estate investment?


A research hypothesis is simply a statement that shows if these is a relationship with the different variables considered in the research. The variables to be considered in the research are inflation, types of direct real estate investment and rental value.

Null hypothesis ():            Inflation has no effect on direct real estate investment in Uyo metropolis.

Alternate  hypothesis (): Inflation has effect on direct real estate investment in Uyo metropolis.

Null hypothesis ():            Inflation has effect on rents of tenants/occupier of direct real estate investment in Uyo.

Alternate  hypothesis (): Inflation has effect on rents of tenants/occupier of direct real estate investment in Uyo Metropolis.


The direct real estate investment to be considered are basically commercial and residential estate investment such as open hall, office space, and shops for commercial investment and single room, two and three bedroom flat for residential investments within four (4) locations in Uyo metropolis which includes: Barracks Road, Oron Road, up to 4 lane, Uruan Street and Ikot Ekpene Road up to Fly over.


The study would be significant to Government, landlord/ property owners, real estate investors, tenants/occupiers, researchers and general public.

Government: Government would benefit with the understanding of inflation and how it affect the rent of tenants/occupier of property. This will guide their decision to develop policy that would control rent and also inflation (monetary and fiscal policies) in the economy to boost the growth of not only the real estate investment but the economy as well.

Real Estate Investor: Real estate investor would have a pre-knowledge that would guide their decision to be prudent in understanding the rudiments surrounding when and how to invest or borrow to carry out real estate investments in an inflationary economy in order to make profit from the investment.

Landlord/Property Owners: They would equally benefit with the enlightenment on how to manage their tenants/occupant of their property when taking decision on the placement of rent change in order to hedge inflation and its effect as well as to avoid long term vacancy on their property due to liability to pay rent by the tenant under an inflationary economy.

Tenants/Occupier: The tenants/occupier would benefit with the knowledge on what transpire on real estate investment in an inflationary economy mostly especially on the price and rent of housing which would enable them to plan ahead of time in payment of rent or investing in real estate.

General Public: The general public would be enlighten on what inflation is about, its causes and effect on real estate investment as well as the economy so as to enable them understand and to adapt to changes that may occur in the real estate market.

Researchers/Student: The outcome of the research would be useful as additional information as well as a source of reference to researchers and students of the estate management profession whom would carry out further research into related topic of its kind regarding inflation and real estate investment, inflation and its effect on rents of tenants, inflation and the nature of property market etc in the future