Inflation Hedging Abilities of Residential Properties in Selected areas of Ibadan Metropolis, Nigeria

Abstract

For long, investors perceived returns on real estate investments as a hedge against inflation; recently, while various empirical studies undertaken in some countries have produced varying results. In this study, the inflation hedging capacities of returns on residential property investments between the year 2002 and 2014 in selected areas in metropolitan Ibadan, Nigeria were empirically examined to ascertain the uncertain inflation hedging abilities in the areas. The study employed the Ordinary Least Squares regression model to regress the rates of returns of the considered residential property investments against actual, expected and unexpected inflation. The inflation hedging capacities of real estate investments were found to vary across geographical sub-markets and return components. Residential properties did not hedge against actual inflation in all the considered areas. However, with regards to expected inflation, the capital and total returns of residential properties in Akobo sub-market completely hedged; while for Bodija estate, it was the income and total returns that hedged against inflation completely and partially respectively. The study therefore recommends that in determining the real estate investments and the geographic locations to integrate in residential property portfolio, property investors should concentrate more in the mentioned geographical areas where residential property investments have shown to be hedging against inflation.

Keywords: Ibadan, Inflation hedging capacity, Investments, Residential properties