The Effect of Currency Fluctuations on Real Estate Investment Decisions in Abuja
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Background of the Study
Currency fluctuations refer to the changes in the value of a nation’s currency relative to others in the global market. These fluctuations can significantly influence international and domestic investment decisions, particularly in sectors like real estate, where large capital investments and long-term financial commitments are involved. The real estate market in Abuja, Nigeria's capital, has witnessed rapid growth, driven by factors such as urbanization, population increase, and government policies aimed at developing infrastructure (Ogundare & Olanrewaju, 2024). However, the Nigerian economy has faced significant challenges due to volatile currency fluctuations, largely influenced by global oil prices, inflation, and exchange rate policies.
For real estate investors, currency fluctuations can alter expected returns, especially for foreign investors and local investors dealing in foreign currencies. The impact of currency devaluation or appreciation can affect the cost of acquiring properties, financing real estate developments, and repatriating profits for foreign investors. The Nigerian naira, in particular, has experienced periods of significant depreciation, which has led to concerns regarding its influence on investment decisions in the real estate sector (Akinyemi & Salawu, 2024).
Currency fluctuations may also affect the affordability of real estate, both for buyers and developers. For instance, a weaker naira can make imported construction materials more expensive, leading to an increase in property development costs. Conversely, a stronger currency could result in cheaper imports and a more favorable environment for property investment. Thus, understanding the effect of currency fluctuations on investment decisions is critical for stakeholders in Abuja's real estate market.
This study will assess how currency fluctuations influence real estate investment decisions in Abuja, focusing on both local and foreign investors, and how these decisions are shaped by the broader economic conditions in Nigeria.
Statement of the Problem
Currency fluctuations pose a significant challenge to real estate investment decisions in Abuja, with the potential to disrupt investment patterns, alter property prices, and affect the profitability of real estate ventures. Investors often face uncertainties regarding the exchange rates and their potential impact on property values, financing conditions, and return on investment. Despite the substantial impact of currency fluctuations on the real estate sector, there is a limited body of research on how these changes specifically affect investment decisions in Abuja. Understanding how currency fluctuations shape real estate investment strategies is vital for investors, policymakers, and developers seeking to navigate the challenges posed by economic volatility.
This study aims to fill this gap by exploring the relationship between currency fluctuations and real estate investment decisions in Abuja, contributing valuable insights for both local and foreign investors in the city’s real estate market.
Objectives of the Study
1. To examine how currency fluctuations influence the decision-making process of real estate investors in Abuja.
2. To evaluate the impact of currency fluctuations on the cost of real estate development in Abuja.
3. To assess the strategies employed by investors to mitigate the risks posed by currency fluctuations in real estate investments.
Research Questions
1. How do currency fluctuations affect real estate investment decisions in Abuja?
2. What impact do currency fluctuations have on the cost of real estate development in Abuja?
3. What risk management strategies do investors adopt to mitigate the effects of currency fluctuations on real estate investments?
Research Hypotheses
1. Currency fluctuations significantly influence the investment decisions of real estate investors in Abuja.
2. Currency fluctuations lead to increased costs of real estate development in Abuja.
3. Real estate investors in Abuja employ specific risk management strategies to mitigate the effects of currency fluctuations on their investments.
Scope and Limitations of the Study
This study will focus on real estate investment decisions in Abuja, considering both residential and commercial property investments. It will explore the impact of currency fluctuations on local and foreign investors and how these fluctuations influence their investment strategies. Limitations include potential challenges in collecting data on currency fluctuations and investor strategies, as well as the difficulty in isolating currency fluctuations from other factors influencing the real estate market.
Definitions of Terms
• Currency Fluctuations: The changes in the value of a country's currency against other currencies in the global market.
• Real Estate Investment Decisions: The choices made by investors regarding the purchase, development, or sale of real estate properties.
• Risk Management Strategies: Techniques used by investors to minimize or hedge against financial risks, including those caused by currency fluctuations.
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