Real estate forecasting model for residential market in Nigeria

Abstract

Real estate residential sector is the most influential sector among the other sectors in built environment. Houses are essentials to human beings and thus impacted the residential property sector in terms of demand and supply. This in turn would potentially cause price fluctuation on the residential properties. The potential increase in residential price would affect the general economy as well as the quality of life. Nigeria has witnessed progressions in residential property and thus needs to be systematically managed to minimize the negative impacts on the people. This includes identifying internal and external factors that could contribute to the volatility of house price in Nigeria especially in the capital city of Abuja. This research aimed at developing a residential property forecasting modelling that covers different property types within Abuja city, Nigeria. Secondary data was used in this research which includes Abuja residential sales price and macroeconomic data such as as Gross Domestic Product, Interest Rate, Consumer Price Index, Exchange Rate, Crude Oil Price and Household Income. The Box-Jenkins Auto Regressive Integrated Moving Average (ARIMA) and Exponential Generalized Auto Regressive Conditional Heterokedasticity (EGARCH) modelling were used in analysing the data. The findings indicate strong and positive correlation between consumer price index (CPI) and exchange rate with the prices of 2,3,4 and 5-bedroom flats in Abuja. On the other hand, interest rate shows a strong negative relationship with all the four categories of residential properties in Abuja. The findings also indicate that there is volatility in residential prices and it varies from one category to another. The leverage effect was only found in the prices of 2 and 3-bedroom flat in Abuja. The potential of forecasting quarterly residential prices in Abuja shows that the forecasting trend follows the actual price closely through-out the sampling period, while the post sample period forecasted the future residential price for five years from 2018 first quarter to 2022 fourth quarter in which ARIMA (4,1,1), ARIMA (1,1,1), ARIMA (8,1,1) and ARIMA (1,1,6) models were developed. The forecasted price shows volatility in the price of 2 and 3-bedroom flats with 100% increase. At present, the real estate price forecasting in Nigeria is based on traditional method which lacked in acceptable standard and process of certification. Therefore, this research has developed ARIMA forecasting model of real estate residential property market in Abuja, which is the first of its kind in Nigeria and Africa. Generally, ARIMA provides effective forecasting model for residential properties in Abuja for a better understanding of its residential price dynamics. It also managed to show that increasing residential price has impacted the general economy.