Risks in feasibility and viability appraisal process for property development and the investment market in Nigeria
| DOI | https://doi.org/10.1108/JPIF-12-2019-0151 |
| Pages | 227-243 |
| Published date | 24 April 2020 |
| Date | 24 April 2020 |
| Author | Zainab Toyin Jagun |
| Subject Matter | Real estate & property,Property management & built environment |
Risks in feasibility and viability
appraisal process for property
development and the investment
market in Nigeria
Zainab Toyin Jagun
Department of Real Estate, Universiti Teknologi Malaysia, Johor Bahru, Malaysia
and
Department of Real Estate, Federal Polytechnic Offa, Offa, Nigeria
Abstract
Purpose –The feasibility and viability appraisal technique is becoming increasingly crucial in the planning
systems, theory, applications and outputs for property development and project investments. This paper aims
to account for the findings of the practices associatedwith risk in the feasibility and viability appraisal process.
Also, it examines the need for a practical framework for conducting a feasibility and viability appraisal, which
can be employed by estate surveyors and valuers in Nigeria
Design/methodology/approach –This study adopted purposive sampling techniques to administer 240
sets of questionnaires, out of which 210 sets were well-thought-out to be useable for the analysis after data
screening. Statistical package for social sciences (SPSS), structural equation modelling (SEM) and analysis of
movement structures (AMOS) were the main analytical tools used to carry out the reliability test, normality
test, exploratory factor analysis, confirmatory factor analysis, measurement and structural model.
Findings –The analysis results indicated that the P-values of the various forms of concepts of risks in
feasibility and viability appraisal process (preparation) for property development and the investment market
was statistically significant: technological factor - 0.000; political factor- 0.000 and economic factor- 0.000.
However, a non-significant effect was found with socio-environmental factors on the preparation of housing
development appraisal with P-value 0.155, and that risk management is neither holistically implemented in the
feasibility and viability appraisal process nor extensively taken into cognisance.
Research limitations/implications –This paper reports the results of the practices among estate
surveyors and valuers in regarding the risk associated in the preparation stages of the feasibility and viability
appraisal process
Practical implications –There are limited studies that suggest risk management factors in the appraisal
reports for property development. Although previous studies have identified the risk factors, there is a lack of
emphasis on management, which entails identification, assessment, monitoring and control. This study,
therefore,recommends the incorporation of risk management into the feasibility and viability appraisal process
implemented by estate surveyors and valuers. It is envisaged that the process will protect investors from the
potential risk factors associated with investments in property development.
Originality/value–The study highlighted the need for practical or empirical research to be used to assess the
significant risk factors that are needed to be reflected in the preparation stages of the feasibilityand viability
appraisal conduct of estate surveyors and valuers in Abuja, Nigeria.
Keywords Estate surveyors, Feasibility and viability appraisal, Nigeria, Property investment, Risk, Risk
management
Paper type Research paper
Introduction
Housing investment is considered one of the most fluctuant components of GDP. However,
the recent booming and bust in the housing markets of countries such as the United States
have resulted in a temporary oversupply of houses accompanied by periods of weak or
insensible investment Kohlscheen et al. (2018) Rognlie et al. (2018). The continuous
construction boom fuelled by expansionary monetary policy could, over time, reduce the
responsiveness of investments in the housing sector. With this position, investors need tools
Property
development
risks in Nigeria
227
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/1463-578X.htm
Received 9 December 2019
Revised 4 February 2020
6 March 2020
Accepted 8 March 2020
Journal of Property Investment &
Finance
Vol. 38 No. 3, 2020
pp. 227-243
© Emerald Publishing Limited
1463-578X
DOI 10.1108/JPIF-12-2019-0151
to make sound investment decisions. In recent times, the share of significant housing
investments appraised by estate surveyors and valuers has been low. This could be due to the
inability of the developers to meet the objectives of projects as evident in the report of
feasibility studies. The lack of success and unprofitability has been ascribed to the various
risk factors. Typically, these factors include higher than expected interest rates compared to
the estimated rates on non-equity funds for property development investment and changes in
demand for such developments. However, it appears that to no small extent that the reports
prepared by professional estate surveyors and valuers do not sufficiently consider such
factors in their predictions while preparing feasibility and viability appraisals Archibong and
Ogunba (2018).
The feasibility and viability appraisal report presently conducted around the globe do not
account for the risk and uncertainty in property development appraisal. Therefore, the
reports fail to address the needs of sophisticated investors globally explicitly. According to
Ogunba (2013), a feasibility study is a report that addresses potential outcomes based on the
understanding of current market scenarios. Consequently, feasibility appraisal has become
increasingly crucial within the planning structure. Hence, the model, applications and yields
from such appraisals now undergo intense scrutiny from various users who request the
service Byrne et al. (2011).
Therefore, when an appraisal is not prepared by a professional or termed inadequately,
the consequences could be unadorned. The urgency lies not just in the claim of
unpredictability but because expert guides in the development market will be unable to
function adequately. This is particularly problematic since it is becoming more challenging to
accurately find or predict the development variable in an unstable environment. It appeals
more from the context of unpredictability, since insufficient awareness of risk by the estate
surveyor and valuer, particularly in Nigeria. Also, the profession remarkably lacks wide-
ranging finance and social influence, which leads to perceptions that the profession is
obsolescent Olaleye et al. (2007).
It should be noted that feasibility appraisal is concerned with the central issue of the
practicability or prospect of the proposed choice. Typically, this notion takes into account the
onward undertaking within the development order. However, viability appraisal is concerned
with the corresponding significance, possibilities and appropriateness of proposed decisions
on the onward mission within the development pattern.
The concept of risk management in property development investment aims to evade cost
overflow and delays caused by risks during project actualisation Lam and Siwingwa (2017).
As a result, risk awareness is of importance in the property investment sector, yet there are
limited studies in this area of research. However, studies by Gehner (2009),Gleißner and
Wiegelmann (2012),Wiegelmann (2012),Razali and Manaf (2014) and Vasv
ari (2015) have
examined the concept at many various levels. In addition, several authors have emphasised
the significant benefits of considering the risks identified by the feasibility and viability
appraisal process. The authors opine that investors could derive benefits by adequately
considering such findings in the long term.
Over the years, the growing global importance of the property investment has placed
considerable emphasis on performance analysis Ojo and Oyewole (2013),Marzuki and Newell
(2017). In the context of the Nigerian economy, property investments have witnessed a
significant change over the years. As such, Kolawale and Grace (2017) opine that the
buoyancy experienced in the early 1970s and 1980s property markets cannot be compared to
today’s economy. Therefore, there is an urgent need to protect investor capital, although
scholars have scarcely examined this area of research in Nigeria. As a result, this epoch has
witnessed a growing wave of property development investment failures and abandonment.
There is growing evidence of numerous abandoned property development investments in
Nigeria. Typically, most developments are abandoned before completion, or the
JPIF
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