Thesis Abstract

Real estate investments are inherently exposed to various risks that can significantly impact project viability. This research study focuses on analyzing the risks associated with the Ekedo Residential Estate in Uyo, Nigeria, and their implications for the project's viability. The study employs a case study approach to delve into the specific risks faced by the real estate development, particularly in the context of the Uyo market. The research methodology includes a combination of quantitative and qualitative data collection techniques. Data is gathered through surveys, interviews with key stakeholders such as developers, investors, and regulatory authorities, as well as a thorough review of existing literature on real estate risk management. The analysis is conducted using both statistical tools and qualitative frameworks to provide a comprehensive understanding of the risk landscape surrounding the Ekedo Residential Estate. The findings of the study reveal several key risk factors that have implications for the viability of the Ekedo Residential Estate project. These risks include market risk, regulatory risk, construction risk, financial risk, and environmental risk. Market risk stems from factors such as fluctuating demand, oversupply of housing units, and changing economic conditions in Uyo. Regulatory risk pertains to challenges related to obtaining permits, compliance with building codes, and dealing with bureaucratic processes that can delay project timelines and increase costs. Construction risk highlights issues such as quality control, delays in construction, cost overruns, and contractor reliability, all of which can impact the successful completion of the project. Financial risk relates to funding availability, interest rate fluctuations, and overall financial stability, which are crucial for sustaining the project through various economic cycles. Environmental risk focuses on factors like natural disasters, climate change effects, and sustainability concerns that can affect the long-term value and attractiveness of the development. The implications of these risks for the viability of the Ekedo Residential Estate project are significant. Developers and investors need to carefully assess and mitigate these risks to ensure the successful implementation and operation of the project. Effective risk management strategies, such as diversification, insurance coverage, contingency planning, and stakeholder engagement, are essential for navigating the complex real estate landscape in Uyo and maximizing the project's potential for success.

Thesis Overview

INTRODUCTION
1.1 BACKGROUND TO THE STUDY

Real estate investing involves the purchase, ownership, management, rental and/or sale of real estate for profit. Improvement of realty property as part of a real estate investment strategy is generally considered to be a sub-specialty of real estate investing called real estate development. Real estate is an asset form with limited liquidity relative to other investments, it is also capital intensive (although capital may be gained through mortgage leverage) and is highly cash flow dependent (Syz, 2008). If these factors are not well understood and managed by the investor, real estate becomes a risky investment. The primary cause of investment failure for real estate is that the investor goes into negative cash flow for a period of time that is not sustainable, often forcing them to resell the property at a loss or go into insolvency. A similar practice known as flipping is another reason for failure as the nature of the investment is often associated with short term profit with less effort (Clayton, 2007).
Management and evaluation of risk is a major part of any successful real estate investment strategy. Risks occur in many different ways at every stage of the investment process. For instance mitigation strategy for fraudulent sale is to verify ownership and purchase title insurance. Real estate owners often assume risk on their property exposure in response to unavailability of coverage. While risk retention by ‑ financially sound companies may help to reduce their cost of risk, absence of insurance is not always desirable. In many cases, property owners are required under the terms of their loan covenants to maintain full insurance to value, with restrictions placed upon the amount of deductibles they may carry (Fisher, 2005). Additionally, under high-deductible or self-insurance programs, operating companies no longer have a budgeted premium, and payment of unexpected retained losses creates potential cash flow problems. Finally, property owners or management of companies have no ability to charge the full cost of retaining property risk to their clients. Although real estate markets represent a large proportion of total wealth in both developing and developed countries, the real-estate derivatives markets are still lagging behind in volume of trading and liquidity with has greatly influenced project viability (Black, 1986). Over the last few years there has been increased activity in developing derivative instruments that can be utilized by asset managers to reduce real estate risk. The possibility of financial loss occurring as the result of owing a real estate investment and its implication on project viability will be focused on in this study. Real estate risk might arise from such things as liability, legal issues, partner problems that can force a sale, fire or theft, loss of rental income and purchasing property with an imperfect title.
1.2 STATEMENT OF THE PROBLEM
Real estate management is a particularly difficult challenge because of its tendency towards liquidity. Typically, even published indices in real estate are based on annual appraisals of large properties, not actual transactions. The recent unprecedented recession has resulted in major long term distress across the real estate industry, and has had severe implications for owners, developers, managers and investors alike. Environmental and construction exposures, catastrophic modeling, stricter lender requirements, and complex requirements involving distressed banks are just some of the risks facing the real estate industry. The researcher however will examine the real estate risks and its implication of project viability.
1.3 OBJECTIVES OF THE STUDY
The following are the objectives of this study:
1. To identify the risks involved in real estate investments.
2. To examine the effect of real estate risk on project viability
3. To identify ways to minimize risk in real estate investment.
1.4 RESEARCH QUESTIONS
1. What are the risks involved in real estate investments?
2. What is the effect of real estate risk on project viability?
3. What are ways to minimize risk in real estate investment?
1.5 HYPOTHESIS
HO: real estate risk does not affect project viability
HA: real estate risk does affect project viability
1.6 SIGNIFICANCE OF THE STUDY
The following are the significance of this study:
1. Result of this study will educate the general public, investors and estate managers on the real estate risks, how it can be minimized and its implication on project viability.
2. This research will also serve as a resource base to other scholars and researchers interested in carrying out further research in this field subsequently, if applied will go to an extent to provide new explanation to the topic.
1.7 SCOPE/LIMITATIONS OF THE STUDY
This study on real estate risk and its implication on project viability will cover all the risks an investor is exposed to in real estate with a view of understanding its effect on viability of project.
LIMITATION OF STUDY
Financial constraint- Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).
Time constraint- The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.
REFERENCES
Black, D., Success and Failure of Futures Contracts: Theory and Empirical Evidence, Monograph Series in Finance and Economics, Monograph 1986-1. New York University, 1986.
Clayton, J. “Commercial Real Estate Derivatives: They‟re Here… Well, Almost.” PREA Quarterly, Winter 2007), pp. 68-71.
Fisher, J. D., ‟New Strategies for Commercial Real Estate Investment and Risk Management‟, Journal of Portfolio Management, Vol. 32, 2005, pp. 154-161.
Syz. Juerg M. Property Derivatives. (Wiley: Chichester, 2008).