The Application of Probabilistic Methods of Risk Analysis in the Investment Appraisal of Residential Properties in Enugu Metropolis, Nigeria
||Nnamani, Obinna Collins
||The Application of Probabilistic Methods of Risk Analysis in the Investment Appraisal of Residential Properties in Enugu Metropolis, Nigeria
||23rd Annual European Real Estate Society Conference in Regensburg, Germany
||Residential property investments are frequently subjected to unpredictable future, encompassing uncertainties and various forms of risks which impact the anticipated level of returns that should compensate for the risks taken by the investors. There are cases where appraised property investment projects were abandoned before completion and some investors lose their investments due to inability to repay loans sourced from credit institutions. These issues have been as a result of the Estate Surveying and Valuation Firms not employing probabilistic techniques in the appraisal of residential property investment risks. The study appraised the factors influencing the application or otherwise of probabilistic methods of risk analysis in residential property investment with the view to proffer workable solutions. The objectives of the study are: to ascertain if Estate Surveying and Valuation Firms in Enugu metropolis are applying these techniques for residential property investment appraisal; to analyse the factors influencing the application of probabilistic methods of risk analysis. Survey research design was adopted for the study. The population of the study comprised 49 Estate Surveying and Valuation Firms in Enugu Metropolis. A demographic formula was used to determine a sample size of 44 firms which were selected by purposive sampling technique. Data collected were analysed using mean and standard deviation; hypothesis was tested using logistic regression analysis. Findings from the study show that the Firms do not adopt probabilistic methods of risk analysis; methods mostly applied were risk adjusted discount rate (RADR) and sensitivity analysis. The degree of sophistication involved with the methods and lack of computer software packages are the factors influencing the non-application of probabilistic methods of risk analysis. The Application of probabilistic methods of risk analysis in residential property investment decision making will provide a substantial level of professional shielding of investors from the ravages of risks and uncertainties.
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