Assessing the Influence of Urban Infrastructure on Residential Real Estate Investment in Warri, Delta State, Nigeria

ESV Irori, Samuel

Abstract

This research explores the impact of urban infrastructure on property values and rental yields in Warri, Delta State, Nigeria. Urban infrastructure, encompassing transportation networks, utilities, public services, waste management, healthcare facilities, educational institutions, and recreational amenities, plays a pivotal role in shaping the appeal and profitability of residential real estate investments. By conducting a survey among estate surveyors with over 10 years of experience and residents in selected locations in Warri, valuable data was gathered from estate and surveyors and valuers, and residents. The findings reveal that well-maintained road networks, reliable utilities such as electricity and water supply, and access to quality healthcare, education, and recreational amenities significantly enhance property values and rental yields. The study emphasizes the significance of continual investment in urban infrastructure to cultivate an advantageous environment for real estate investment and economic progress.

Keywords: Infrastructure, Residential Property, Real Estate Investment

1.0 Introduction

Infrastructure is an umbrella term for many activities referred to as “social overhead capital”, which include public utilities such as power, telecommunication, water supply, sanitation, and sewerage; and public works such as roads, dams, and drainage” (World Bank, 1994). The urban infrastructure of a city is an important consideration when investing in residential real estate. This includes networks for transportation, electricity, water supply, and waste management. A strong urban infrastructure may raise property prices and encourage investment in residential areas, claim Aliyu Kasim, & Martin, D (2018). On the other hand, inadequate infrastructure may deter capital and restrict urban growth.

Several studies have shown that infrastructure availability and quality significantly impact investment decisions and property values. The research has provided enough evidence of the correlation between investments in residential real estate and urban infrastructure (Adejumo & Adeyemi, 2019; Udoh, 2021). Large cities cannot develop without investments in urban infrastructure, and this is true in any nation. A growing country’s economy depends on having good roads, trains, airports, schools, security services, and medical facilities. For a considerable amount of time, economists, surveyors, and planners have tried to figure out why certain locations see more urbanisation and economic development than others. The ability of a city to fund major infrastructure projects directly contributes to population growth, which in turn spurs significant real estate development. There have been concerns raised about the viability and appeal of residential real estate investments in some Nigerian towns, such Warri, Delta State, where despite the city’s growing population, the municipal infrastructure is still underdeveloped and poorly maintained.

One of the main metropolitan centres in Nigeria’s oil-rich Niger Delta area, Warri, has seen fast urbanisation and population increases not commensurate with enough infrastructural development. Critical problems like inadequate road networks, unstable energy supply, insufficient water facilities, and poor waste management systems (Nwokoro & Oluwatosin, 2020) call into doubt the sustainability of the city’s real estate market, particularly in the residential sector.
The way that urban infrastructure affects the profitability and sustainability of their investments worries investors more and more. Owei, Edewor, & Nwoko, (2019) contend that in metropolitan regions, property prices and rental yields are much influenced by the state of infrastructure. This is especially pertinent in Warri as the real estate market there is very sensitive to variations in infrastructure development. The insufficient urban infrastructure in Warri’s residential real estate sector presents major obstacles for investors there. In addition to lowering property prices, inadequate infrastructure raises real estate investment risk (Okoye & Emeka, 2022). For example, the absence of dependable transit systems can make certain residential locations less accessible, therefore lowering demand and hence lowering rental returns. In the same vein, erratic power supply might discourage possible renters or purchasers, therefore aggravating the difficulties real estate investors confront.

These difficulties call for an evaluation of the degree to which Warri’s residential real estate investment is influenced by urban infrastructure. This research attempts to evaluate Warri, Delta State, Nigeria’s residential real estate investment’s impact on urban infrastructure. This study will provide policymakers, investors, and urban planners with important insights by analyzing the existing infrastructure situation in Warri and how it affects real estate investment trends. The findings of this research are anticipated to contribute to the ongoing discourse on urban development in Nigeria and offer practical recommendations for enhancing the investment climate in the residential real estate sector

2.0 Literature Review

2.1 Infrastructure

Nubi (2003) defines infrastructure as the collection of all amenities that enable a city to operate efficiently. It encompasses a wide array of economic and social amenities essential for fostering a conducive environment for economic development and improving the standard of living. This includes housing, electricity, water supply, drainage, waste management, transportation routes, sanitation, healthcare, education, communication networks, and public institutions such as police stations, fire stations, banks, and post offices. Essentially, infrastructure refers to the extensive public services, systems, and facilities of a country or region that are vital for economic activities, encompassing utilities like electricity and water, public transport, communication networks, roadways, and educational establishments. Jerome (2006) expressed the same opinion, stating that infrastructure refers to all fundamental inputs and necessities for the proper functioning of the economy. Infrastructure serves as the essential foundation for the proper functioning of a city..

The essential amenities and physical systems required for a city to function are included in urban infrastructure. This includes infrastructure for moving around the city, such as roads, bridges, public transportation, and other modes of transportation; dependable power for home and business use; efficient waste management systems and access to clean water; communication infrastructure, such as phone and internet connectivity; and the availability of facilities for recreation, health, and education.

2.2 Residential Property Investment

Diverse individuals and organizations pursue investments in the real estate market, each with its unique expectations regarding returns and property. The primary focus of this study is residential property, which is a multidimensional good that is defined by a collection of attributes that are variable in both quantity and quality (Can, 1990). The identification of relevant variables that shed light on the values of residential properties for sale and rent is frequently a difficult task, as each property is distinctive. An approach has been implemented by researchers to model the value of residential properties by evaluating properties according to their neighbourhood characteristics (Tse & Love, 2000).

Investing in residential real estate involves putting money into residential properties in order to earn a return. Key factors in this sector include the market price of residential properties, which can be influenced by the quality and availability of infrastructure. The income generated from renting out residential properties is also linked to the surrounding infrastructure. The willingness of investors to invest in residential properties can be impacted by the perceived adequacy of infrastructure.

2.3 Impact of Urban Infrastructure on Real Estate Investment

In a comprehensive study conducted by Odudu (2003) comparing various neighborhoods in Lagos, it was observed that housing values tend to be highest in areas with access to multiple forms of infrastructure. In research on the factors influencing land value in medium-density residential neighbourhoods in the metropolitan area of Lagos, Nigeria, Oduwaye (2004) discovered that telephone services, public water supply, power, access roads, and proper drainage are essential. Higher land values were correlated with the presence of these utilities. Oduwaye emphasized the importance of the road network in determining property prices, pointing out that improvements in transportation—particularly in the form of roads—improved accessibility. At the 0.01 level of significance, a correlation coefficient of 0.177 for transport improvement was found using Spearman’s correlation analysis. Additionally, the effects of demand, supply, and location on residential property values were not considered. According to Adebayo (2006), competition for locations with excellent urban infrastructure tends to raise the value of land and homes, whether they are rented out or sold. Additionally, Adebayo stressed that the provision of essential amenities like power, water, and accessibility may influence residential customers’ willingness to pay more for a property-a link that has also been confirmed by other empirical investigations.

In a 2008 study, Glaeser, Kahn, & Rappaport examined the impact of transportation infrastructure improvements on residential property values in Atlanta, Georgia. The authors discovered that upgrades to public transit systems and road networks resulted in significant increases in property values in areas with improved accessibility. The study highlighted that improved transportation infrastructure not only raises property values but also encourages investment in residential real estate by enhancing access to amenities and reducing travel times. In a separate study in 2012, Coulson & Jing analyzed the influence of the London Underground’s expansion on residential property prices. Their findings demonstrated that the addition of new subway stations led to increased property values in their vicinity, indicating that transportation infrastructure improvements can significantly impact local real estate markets. The study also underscored the importance of accessibility enhancements in driving investment in residential areas.

Oluwole (2019) conducted a study focusing on the link between utility infrastructure (water supply and electricity) and residential property values in Lagos. The research findings suggested that dependable utility services have a notable positive impact on property values and rental yields. Areas with consistent water supply and electricity demonstrated heightened demand and investment, underscoring the pivotal role of utility infrastructure in real estate markets. In a similar vein, Ngugi & Mwaura (2021) explored the influence of reliable electricity and water services on residential real estate investment in Nairobi. Their study established a favorable correlation between the quality of utility infrastructure and property values, indicating that enhancements in these services draw more investors and enhance the overall appeal of residential properties. Furthermore, Lee (2017) delved into the effects of broadband internet availability on residential property values in New York City. The study uncovered those properties with access to high-speed internet commanded higher values than those without, particularly in suburban and rural areas, revealing the increasing significance of communication infrastructure in shaping real estate investment and property values. Similarly, Reddy (2020) examined the impact of internet connectivity improvements on residential real estate in Bangalore. The study disclosed that upgraded communication infrastructure, such as faster internet speeds, contributed to escalating property values and drew increased investment, particularly in technology hubs and burgeoning residential neighborhoods.

Zhang & Zhang (2018) conducted an analysis on the influence of public services, such as schools and healthcare facilities, on residential property values in Shanghai. Their study revealed that properties situated near high-quality public services showed increased value and attracted more investment. This highlights the pivotal role of public services in stimulating real estate demand and shaping investment trends. Similarly, Mokoena’s (2022) research in Johannesburg delved into the correlation between the availability of public amenities, like parks and recreational facilities, and residential property values. The study demonstrated that well-maintained public services had a positive impact on property values and investment, underscoring their significance in enhancing the appeal of residential areas. Furthermore, Patel & Kumar’s (2019) comprehensive study in Mumbai examined the impact of various urban infrastructure elements, such as transportation, utilities, and public services, on residential real estate investment. Their findings indicated that enhancements across multiple infrastructure categories led to substantial increases in property values and investment. The study stressed the cumulative effect of diverse infrastructural improvements on real estate markets.

Silva & Costa, (2020) investigated how combined infrastructural improvements (e.g., transportation, utilities, public services) affected residential real estate investment in São Paulo. The study found that integrated infrastructure development was associated with increased property values and investment activity, underscoring the importance of a holistic approach to infrastructure planning.

3.0 Study Area

Warri is located in the southwestern part of Nigeria, in the Niger Delta region, approximately 230 kilometers south of Benin City. The city is easily accessible via major road networks and a river transport system. As a vital urban center in the Niger Delta region, Warri plays a crucial role in the economic, commercial, and administrative sectors of the southern region of Nigeria. Its strategic location along the Warri River has historically and presently contributed to its significance in trade and industry. With substantial population growth and urban expansion in recent decades, the city and its metropolitan area now exceed 500,000 people, representing a diverse mix of ethnic groups and socio-economic backgrounds (National Population Commission, 2023).

Warri is renowned for its industrial base, including oil and gas operations, which play a central role in the city’s economy. The presence of major oil companies and associated industries contributes to the city’s economic dynamism and influences residential real estate demand (Ayodele & Olawale, 2021). The Warri Port is a vital infrastructure asset, facilitating maritime trade and contributing to the city’s economic activities. The port’s development has a direct impact on residential and commercial real estate, as it enhances connectivity and accessibility (Egbokhare, 2022).

The city also has a rail system that enhances its connectivity. However, transportation infrastructure challenges, such as road congestion and maintenance issues, impact residential and commercial real estate dynamics (Ojakorotu, 2020). Warri faces challenges related to inconsistent utility services, which influence the attractiveness and investment potential of real estate (Ugbodaga & Alabi, 2021).

The city’s growth has not been matched by a corresponding improvement in urban infrastructure. Infrastructural challenges in Warri, including poor road networks, unreliable power supply, and inadequate water facilities, have had a considerable impact on the city’s real estate market (Nwokoro and Oluwatosin, 2020). These challenges present both risks and opportunities for investors in the residential real estate sector.

Figure 1.0: Map of Warri South Showing Study Area.

4.0 Research Methodology

This study utilized a quantitative approach to gain a comprehensive understanding of the relationship between urban infrastructure and residential real estate investment. Structured questionnaires were administered to registered estate surveying and valuers with over 10 years of professional practice, as well as to residents in Warri. A total of 47 estate surveyors were purposively selected based on their years of experience. Additionally, questionnaires were randomly administered to 73 residents in GRA Warri, Edeba, Ugbuwangegue, and Ogunu in Warri South who are clients of valuers. In total, 120 respondents were sampled, out of which 98 questionnaires were retrieved and analyzed. The survey includes questions related to perceptions of infrastructure quality, investment decisions, and property values. The questionnaires will be designed to capture only quantitative data.

5.0 Result and Discussion of Findings

This section presents the results of the questionnaire administered and findings

5.1 Educational Qualification

Figure 5.1 shows the educational level of the respondents. The figure indicates that respondents have some form of formal education from tertiary level (undergraduate) 19.4%, to Bachelor’s degree 41.8%, and up to Master’s degree 22.4%, to Doctorate 10.2% respectively and only 6.1% had secondary education. This suggests that a significant number of respondents have higher education qualifications, particularly those with bachelor’s and master’s degrees. This indicates a well-informed group regarding real estate investments.

Figure 4.1: Educational Qualification