Diversification potentials of residential property investments by local areas in Ibadan

Abstract

This study evaluates the performance due to diversification of 3 and 5bedroom residential property types in different geographic areas in Ibadan with a view to advising prospective risk-averse investors on best paired investment combinations to invest upon. Annual rents and capital values were obtained from the records of estate surveying and valuation firms that are operating in the study areas. This was followed by averaging the annual rental and capital values of the properties and adopting the annual averages in determining the income returns, capital returns and total returns of residential properties on annual basis from 2002 to 2014. The correlation coefficients of several paired returns were determined using Statistical Packages for Social Sciences (SPSS) version 20. Investing on 3-bedroom flats in Eleyele was found to be consistently a viable investment option in all cases of correlating the returns; except in the case of correlating annual returns of 3-bedroom in Eleyele and 5-bedroom in Bodija, where correlation coefficient is significant. Based on the findings; we recommend that income return risk-averse investors should consider paired combinations of 3-bedroom flats in Eleyele as a diversification option. For capital return risk averse investors and total return risk averse investors; combination of 5-bedroom in Bodija and 3-bedroom in Oluyole should be considered as diversification option by these nature of investors.

Keywords: Diversification, geographic, investments, property, residential, returns.