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Weekly Updates2. DATA SOURCES AND METHODOLOGY
The framework upon which this paper achieves its objectives was based on the theoretical expectations suggested by Del Casino (1995), Barry et al. (1996) and Olaleye (2005). Such potential factors that are capable of impacting on decision makers' choice of diversification strategies can be categorized under three main headings. These are (i) investors return and risk consideration (ii) market players (investors and practitioners) characteristics and (iii) market characteristics. However, only the characteristics of the market and that of the market players were the focus of this study since studies in the past have focused more on the first aspect. Variables considered under these two characteristics (factors) include:
A. Market Characteristics
(i) The availability or otherwise of data in constructing diversification schemes.
(ii) Operating environment and the ease of dealing with some states and local governments.
(iii) The effects that certain areas might have on the returns from portfolio.
(iv) The issue of convenience in managing the constituent properties of a portfolio.
(v) The need to reduce management operating costs
(vi) Vulnerability of some areas to natural or artificial disasters.
(vii) Investors' overall expectation of the benefits of diversification scheme/strategies.
B. Market Players Characteristics.
(viii)The ability/accessibility or lack of it to computer programs for portfolio analysis.
(ix) Education and experience of market players with alternative diversification techniques.
The practitioners' and investors' perception of these factors as they affect their choice of diversification strategies was measured on a 4-point likert scale from 0 (not important) to 3 (very important). The study of investors focused on institutional property companies, while practitioners comprised of the estate surveying and valuation firms in the country. Twenty-eight (28) institutional property investors and 159 real estate practitioners were studied. Data, on the characteristics of the sampled population and what they considered as the factors impacting on their choice of diversification strategies, were collected with the use of questionnaires backed up with interviews.
The property markets in Nigeria, following from the vibrancy and active nature of each market/location, can be classified into two major categories, namely, the primary and secondary markets. The secondary markets include the medium and low rental and capital value markets. The property markets of Ibadan, Ondo, Enugu, Kano and Minna can be classified into this category. The primary markets are the high rental and capital value markets where there is very active and dynamic market situation. These markets include the three main commercial nerve centres of Nigeria, that is, Lagos, Abuja and Port-Harcourt metropolitan areas. And as it is expected, approximately 61% of real estate practitioners in the country have their head offices located in these three locations, while about 60% of real estate transactions in Nigeria are conducted in the areas. As a result of this, the data collections were concentrated on Lagos, Abuja and Port-Harcourt metropolitan areas. In addition, the major reasons for selecting these metropolitan areas and for concentrating most of the analysis on institutional property investors and estate surveying firms are: (1) it is expected that these areas would have an active property portfolio diversification practice; (2) data collected from these areas would form a general and true representation of what is obtained in the whole country; and (3) Estate Surveyors, as property experts, should have a better understanding of the peculiar characteristics of property investment and the market; and be able to apply this in the process of real estate diversification analysis than other professionals.
The sample size of the property investors represents all the institutional property companies identified based on the examination of the Property Finder, a directory of Real Estate Business in Nigeria (2002 Edition) and the initial discussion with professionals in practice. Samples of 5, 1 and 22 companies, respectively, were studied in Abuja, Port-Harcourt and Lagos metropolitan areas. In the case of the practitioners, approximately 60% of the constituent population in each of the three locations was sampled based on the 2002 Edition of the register of the professional body. For example, 136 (59.6%) of the 228 Estate firms in Lagos were sampled. In Abuja, 9 firms were sampled, representing 60% of the entire population (15). The total coverage of the Estate firms in Port-Harcourt represented 60.86%. Fourteen (14) of the total twenty three (23) firms were studied. This shows that 159 questionnaires were administered on real estate practitioners which represented 59.77% of the total 266 Estate Surveying firms in the three areas studied. This represented as well, 36.22% of the total 439 Estate firms in the country. The total responses were 12 (43%) and 54 (34%) for property investors and estate surveying firms respectively. The data collected were analysed with the use of frequency distribution, mean and standard deviation measures and Chi-square test.
3. RESULTS
In presenting the results of the questionnaire survey, the paper first examined the diversification strategies given highest consideration in the Nigerian property market among the two broad categories; that is the naive and MPT based diversification strategies.
3.1. Diversification strategies adopted in the Nigerian property market
As shown in Table 1, all of the institutional property investors adopted naive diversification strategies in their practices. With respect to the practitioners, they were using both naive and Modern Portfolio Theory (MPT) based diversification strategies when advising their clients on diversification decisions (see Table 1).
Specifically, Table 1 shows that 33 (61.1%) of the practitioners were adopting naive diversification strategies. Nine (9) (16.7%) adopted MPT based strategies, while, 14.8% were adopting both methods to advise their clients. This therefore shows that naive diversification were the preferred strategies in the Nigerian property market. Two reasons can be suggested for this finding: (i) modern portfolio theory based (efficient portfolio) diversification strategies involved complex mathematics; whereas, investors and practitioners alike might not have been trained on the techniques of these strategies; (ii) investors generally are known to be reluctant of investing on the basis of trading and allocation system that they do not understand. In addition, small size of investors' portfolios might make the use of MPT based diversification impracticable. Also, lack of time series data for explicit analysis involved in efficient portfolio diversification might have also influenced this finding. To establish these facts however, the paper examined the nature of the Nigeria property market in the subsequent sections.
3.2. The nature/characteristics of the Nigeria property market
In examining the characteristics of the Nigerian property market, emphasis is placed on age of the property companies and the size of their portfolios. The latter is considered in terms of numbers and values of property owned. The paper also examined the sophistication of the market in terms of the availability and usage of information and the training of the sampled population by probing into their qualifications and professional developments. The aim is to establish the nature or maturity of the Nigerian property market and thereby unravel the factors that have influenced the choice of naive strategies in property portfolio diversification as found out in the previous section above.
3.2.1. Age of the institutional property companies/investors
The result in Table 2 shows that 8.3%, 41.7%, 41.7% and 8.3% of the companies were aged between 1 and 5 years, 6 to 10 years, 11 to 15 years and 21 years and above respectively. This indicated that greater percentages (83%) of the companies sampled were aged between 6 and 15 years. Given this outcome, one may conclude that institutional real estate companies in Nigeria were of young ages. This result points to the fact that the idea of institutional real estate investment is recent in Nigeria and that the property market might be expected to be an emerging market.
3.2.2. Numbers of properties owned by property investors and the portfolios' value
From the results in Table 3, it is revealed that at least 58.3% of the companies owned between 1 and 15 properties. Only 8.3% had in their portfolios between 16 and 30 properties. Similarly, 16.7% had between 31 and 45 properties in their portfolios and indeed another 8.3% had properties up to between 106 and 120 in number. Thus, it can be deduced that most property investors or companies in the Nigerian property market had just between 1 and 15 properties in their portfolios.
As shown in Table 3 as well, the study revealed that greater percentages (58.3%) of the sampled investors had their portfolio value worth a maximum of N500M. This is just about $3.9M at the present exchange rate of about N128 to $1. This thus confirmed that investors in Nigeria were small time institutional investors especially when compared to their counterparts in U.S. who had, within one property class alone, properties that worth $100M (Zeiring and Mclntosh, 1999). These results might be as a result of the young nature of the companies in terms of age and, especially, the lack of easy access to large capital fund for long term investment in Nigeria. It should be noted that only one of the property investors in Nigeria had access to funds through the capital market while others were relying on direct funding from loans and equity funds. The small size of many of the investors' portfolios might have discouraged the use of MPT based diversification strategies.
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