Potential benefits of incorporating residential property investment in a mixed asset portfolio

Abstract

Investors would rationally go for a mixed asset portfolio that guarantees risk reduction and return enhancement. The paper examined the potential benefit of incorporating residential property investment as a portfolio diversifier in a mixed asset portfolio. The target population comprised all the registered estate surveying and valuation firms in Lagos metropolis and all the first-tier securities listed on the Nigerian Stock Exchange. A total of 135 registered estate surveying and valuation firms were selected for examination using stratified random sampling technique. With respect to equity investment, OANDO, United Bank for Africa Plc and Julius Berger Plc securities were randomly selected for examination. Holding period Return (HPR), Standard deviation, and Sharpe performance index were used for analysis. Market indices of the securities were analysed and compared with the performance of real estate investment using share prices of the beginning and end of holding period and dividend during the holding period. The results showed that direct residential property house types in all locations considered performed better than investment in share by having higher Shaper performance index when their return and risk were adjusted with the use of 12% risk free rate; it was also revealed that 3-bedroom flat performed better than all other house types in all locations with the highest demand. The study revealed that direct residential property has more potential diversification when compared with investment in stocks and shares. The study concluded that investment in direct residential property has a lot of potential diversification benefits when incorporated in a mixed asset portfolio.