Optimizing Capital Budgeting Appraisal for Minimizing Economic Waste In Housing Infrastructure Provision in Nigeria

ESV Abiodun Bewaji

The efficient supply of housing and housing services as one of the core social responsibility of the government to its citizens at in various level is mostly characterized with high acquisition and development cost. In developing economies across the world where increasing economic hardship and difficulties have emerged due to overpopulation and inconsistent policies, the financial burden of delivering adequate housing infrastructure to the ever-increasing household in urban and rural settlement has been an issue of great concern. Over the years, the cost of delivering housing infrastructure in developing countries like Nigeria have continued to rise amidst the harsh socio-economic realities such as sky-rocketing inflation and urban poverty. Formulating strategic economic plan that is aimed at reducing the gap in the deficit of quality housing with optimal cost efficiency has become the focus of stakeholders in the housing sector.

Managing scarce financial resources through the integration of critical economic and accounting methods that seeks to enhance the measurement of investment viability based on defined key performance index (KPI) is crucial in the minimization of economic waste in the development of housing project. The application of capital budgeting across various stages of housing delivery including project initiation, design and planning, tendering and procurement and project monitoring will ensure sound evaluation of project cost against the expected return which will enable developers in the public sector reduce the risk of investing in unprofitable projects. Employing appraisal techniques such as net present value (NPV) and internal rate of return which estimates the current value of cash flows from alternative projects by discounting future returns will allow for better resource allocation.

Developing countries which are mostly reliant on debt financing can make prudent use of short-term financial resources by investing in projects with short period of capital recoupment and good ratio of benefit to cost. Achieving informed decision-making as relating to budgeting for housing should be undertaken in partnership with experts in the field of investment valuation like the Estate Surveyors and Valuers. The involvement of Estate Surveyors and Valuers in capital budgeting can help reduce economic risk through the performance of thorough market analysis that is based on due diligence and also complies with regulatory requirements thus ultimately leading to the optimization of investment return. The input of these professionals as land economist is indispensable towards ensuring effective financial planning for housing projects.

The provision of housing projects and infrastructure as a matter of huge social significance and financial concern should be done through appropriate feasibility and viability appraisal strategies that evaluates the trade-off between investment risk and return as well as the ratio of project cost to benefit. Delivering housing infrastructure should be based on informed decisions that weighs in the possibility of achieving quality housing development with minimal cost by using scientific and practical methods over the rule of thumb or intuition as commonly practiced in developing countries. Nigerian housing sector will realize better financial performance with reduced economic losses to failed investment when capital budgeting technique is employed in evaluating housing projects before commitment hard earned resources.