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The global financial crisis that impacted on all world economies through 2007 and 2009 has not been confined to the finance institutions but has had a direct and indirect impact on the property markets worldwide from both an investment and ownership perspective. It must be noted that the property markets have experienced various levels of impact from the event. The impact of the crisis is considerable if one is to consider the impact on Lagos property market and general real estate practice in Lagos at the point of the crisis as enunciated by various writers, . However, despite the very direct impact of the global financial crisis on residential property markets in 2007, the year between 2009 and 2013 saw an increased rentals and sales in residential properties in Banana Island. Therefore the impact of the global financial crisis on residential properties in Banana Island submarket is not significant. It is suggested that government should immediately increase investment in public infrastructure to support private sector thereby enhancing diversification and competitiveness in real estate investment and this will make rentals more affordable to the increasing population. Also, lending rate to real estate investors should be well managed to avoid predatory lending. This could be achieved by way of reduction to property investors and this will encourage further investment in real-estate development.


Title Page                                                                                                                    i

Certification                                                                                                                ii

Declaration                                                                                                                  iii

Dedication                                                                                                                  iv

Acknowledgements                                                                                                    v

Abstract                                                                                                                      vi

Table of Contents                                                                                                       vii

List of Tables                                                                                                              viii

List of Figures                                                                                                             ix



1.1              Background to the Study                                                                               1

1.2              Statement of  the Problem                                                                              5

1.3              Research Questions                                                                                         7

1.4              Aim and Objectives of Study                                                                         7

1.5              Significant of Study                                                                                       8

1.6              Scope of Study                                                                                               9

1.7              Study Area                                                                                                      9



           2.1              Global Financial Crisis and its Original                                              12       

           2.2              Causes of Global Financial Crisis                                                       15

        2.2.1        Mortgage Underwriting                                                                                  15

        2.2.2        Down Payment and Negative Equity                                                             16

         2.2.3        Predatory Lending                                                                                          16

         2.2.4        Risk Taking Behavior                                                                                     17

         2.2.5        Excessive Private Debt Level                                                                         18

         2.2.6        Home Equity Extraction                                                                                 18

         2.2.7        Housing Speculation                                                                                       19

         2.2.8        Pro-cyclical Human Nature                                                                             20

         2.2.9        Corporate Risk Taking and Leverage                                                             20

 2.2.10 Lack of Transparency and Independence in Financial Modeling   21

            2.3              Effect of Global Financial Crisis World Economy                                         22

            2.4              Global Financial Crisis and Nigerian Real Estate Sector                                27

            2.5              Property Market                                                                                              29

            2.5.1        Overview of Property Markets                                                                       29

            2.6              Property Cycles                                                                                               33

            2.6.1        The Length of Property Cycles                                                                       33

            2.6.2        Property Cycles Stages                                                                                   34

            2.6.3        Overview of Elements of Property Cycles Stages                                          34

            2.7              Economic and Business Cycles                                                                      36

            2.8              Factors Influencing Real Estate Value                                                           36

            2.9              Overview of Nigeria Real Estate Market Performance                                  39

           2.10          Relationship between Financial Crisis and Property Market                      40 



3.1       Overview                                                                                                        53

3.2       Research Design                                                                                             53

3.3       Sources of Data                                                                                              55       

3.3.1    Primary Data                                                                                                   55

3.3.2    Secondary Data                                                                                              55

3.4       Pilot Survey                                                                                                    56

3.5       Study Population                                                                                            56

3. 5.1   Sampling Frame and Size                                                                               57

3.5.2    Sampling Procedure and Techniques                                                              57

3.6       Population Characteristics                                                                              57

3.7       Data Presentation and Analysis                                                                      57

3.8       Data Measurement                                                                                          58



4.0       Introduction                                                                                                    59

4.1       Reliability Test                                                                                                59

4.2       Characteristics of Respondents                                                                      61

4.3       research Questions                                                                                          62



5.1       Summary                                                                                                         86

5.2       Findings                                                                                                          87

5.3       Recommendations                                                                                          88

5.4       Conclusion and Summary of Findings                                                           89

5.5       Recommendations for Further Study                                                             90

            References                                                                                                     91

            Appendix                                                                                                       96




Table 1:          Description of Data

Table 2:          Respondent’s Gender

Table 3:          Years of Practice in Business

Table 4:          Respondent's previous involvement in Property Transaction

Table 5:          Types of Property Respondents have been involved in

Table 6:          Number of Places Where the Respondents had Direct Property Transaction

Table 7:          Factors Responsible for Global Financial Crisis

Table 8:          Corporate Risk Taking and Leverage

Table 9:          Mortgage Underwriting

Table 10:        Down Payment and Negative Equity

Table 11:        Lack of Transparency and Independence in Financial Modeling

Table 12:        Predatory Lending

Table 13:        Pro-Cyclical Human Nature

Table 14:        Risk Taking Behavior

Table 15:        Excessive Private Debt Levels

Table 16:        Home Equity Extraction

Table 17:        Housing Speculation

Table 18:        Impact of 2007 economic meltdown on Nigeria Economy

Table 19:        The Global Financial Crisis had significant effect on Nation's Property Market

Table 20:        The Global Financial Crisis had significant effect on Lagos State Property Market

Table 21:        The Global Financial Crisis has been Influencing the Choice of Property Development

Table 22:        The Global Economic Meltdown made Residential Property a more Viable option of Property Investment

Table 23:        There has been significant downturn in the issuance of residential development planning permit on the Banana Island

Table 24:        Market experience in terms of rental transactions for residential properties located on the banana Island before and after the Global Financial Crisis

Table 25:        Market experience in terms of sales for residential properties located on the banana island before and after the Global Financial Crisis

Table 26:        Market experience in terms of rental transactions for residential properties located on the banana island before and after the Global Financial Crisis

Table 27:        Market experience in terms of sales for residential properties located on the banana island before and after the Global Financial Crisis

Table 28:        Factors Influencing Real Estate Value on Banana Island Residential Property Sub-Market 

Table 29:        Influence of Demography/Population in Influencing Real Estate Value in Banana Island Sub-Market

Table 30:        Influence of Interest Rate in Influencing Real Estate Value in Banana Island Sub-Market

Table 31:        Influence of the Economy in Influencing Real Estate Value in Banana Island Sub-Market

Table 32:        Influence of Title Document in Influencing Real Estate Value in Banana Island Sub-Market




Figure 1:         Respondents Gender

Figure 2:         Years of Practice in Business

Figure 3:         Respondent’s Previous Involvement in Property Transaction

Figure 4:         Number of Property Respondents have Involved In

Figure 5:         Number of Places where the Respondents had Direct Property Transaction

Figure 6:         Corporate Risk Taking and Leverage

Figure 7:         Mortgage Underwriting

Figure 8:         Down Payment and Negative Equity

Figure 9:         Lack of Transparency and Independence in Financial Modelling

Figure 10:       Predatory Lending

Figure 11:       Pro-Cyclical Human Nature

Figure 12:       Risk Taking Behaviour

Figure 13:       Excessive Private Debt Levels

Figure 14:       Home Equity Extraction

Figure 15:       Housing Speculation

Figure 16:       Impact of 2007 Economic Meltdown on Nigeria Economy

Figure 17:       The Global Financial Crisis had significant effect on Nation’s Property Market

Figure 18:       The Global Financial Crisis had significant effect on Lagos State Property Market

Figure 19:       The Global Economic Meltdown has been Influencing the Choice of Property Development

Figure 20:       The Global Economic Meltdown made Residential Property a more visible option of Property Investment

Figure 21:       There has been significant downturn in the Issuance of Commercial Development Planning Permit on the Island

Figure 22:       Market Experience in Terms of Rental Transactions for Residential Properties Located on the Banana Island before and after the Global Financial Crisis

Figure 23:       Market Experience in Terms of Sales for Residential Properties Located on the Banana Island before and after the Global Financial Crisis

Figure 24:       Market Experience in Terms of Sales for Residential Properties Located on the Banana Island before and after the Global Financial Crisis

Figure 25:       Prices for the Average Annual Sales from 2007-2013 (Million Naira)

Figure 26:       Prices for the Average Annual Rental Fee from 2007-2013 (Million Naira)

Figure 27:       Influence of Demography Population in Influencing Real Estate Value in Banana Island Sub-Market

Figure 28:       Influence of Interest Rate in Influencing Real Estate Value in Banana Island Sub-Market

Figure 29:       Influence of Government Policies/Subsidies in Influencing Real Estate Value in Banana Island Sub-Market

Figure 30:       Influence of the Economy in Influencing Real Estate Value in Banana Island Sub-Market

Figure 31:       Influence of Title Document in Influencing Real Estate Value in Banana Island Sub-Market






1.1       Background to the Study

Several local and international media have reported on the cause, impacts and the consequences of global financial meltdown. The global financial meltdown is a situation where the world’s status quo can no longer be maintained (Ajayi, 2013).

Cubis (2009) mentioned that over exposure of the lending practices of the advanced countries, “led into a series of complicated issues within the global market economies which resulted in the collapse of numerous banking and other corporate entities, reduced liquidity and created global recessionary pressure”.

The global financial crisis is considered by many economists to have been the worst financial crisis since the great depression of the 1930s (Eichengreen and O’rouke ,2010).It threatened the collapse of large financial institution which was prevented by the bailout of banks by national governments, but stock markets still dropped worldwide.  In many areas, the housing market also suffered, resulting in evictions fore closures and prolonged unemployment.  The crisis played a significant role in the failure of key business, declined in consumer wealth estimated in trillions of U.S (United States) dollars and a downturn in economic activity (Williams, 2012).

The bursting of the U.S housing bubble which peaked in 2004 (US Census, 2006) caused the values of securities tied to U.S real estate pricing to plummet, damaging financial institution globally (Michael, 2011).

The relationship between Nigerian banks and the international financial systems may be weak but not totally absent (Nwokah et al, 2009).  Thus, these banks, the Central Bank of Nigeria (CBN) and the country herself are subject to the vagaries of the global economy to a moderate extent.

Complete or universal financial crisis often occur when investment booms and rapid credit expansions collapsed because of expectations of high future returns that drove them are not fulfilled. (Alabi, 2010).

It is also worthy of note, “that where an economic downturn is preceded by housing boom the downturn tends to be more protracted.(Alastair,2009). The effect of the crisis has contributed to uncertainty in global economic condition and has also heightened the volatility of investments and property markets.

As a contributing factor to the crisis, the disappearance of the sub-prime residential mortgage market in the United States of America triggered the global financial crisis. As the crisis gathered momentum, the major property markets in Nigeria such as Lagos, and Abuja recorded an all-time high boom between 2007 and second quarter of 2008. This activities was easily explained by the activities of Niger Delta Militants wherein oil corporations were relocating their offices from the cities of Port-Harcourt to Lagos and Abuja and this singularly exerted high pressure on the available housing stocks in Lagos.

It was not too long that it became clear that an adverse feedback loop had been created between the financial markets and the real economy as a result of the rapidly deteriorating world economies.

It should be noted that this study is not to provide a comprehensive overview of the global financial crisis that began some eight years ago. This has already been done quite extensively in particular by Fajana (nd), Olaniyi and Olabisi (2011), Sanusi (2011), Fapohunda (2012), Alabi (nd) and Ajayi (2013) among others who all describe and analyze the numerous triggers and mechanism through which the crisis unfolded and spread to the main developed financial market, instead we would like to focus on the impact it may have had on residential properties on Banana Island submarket.

In the past year, private equity firms have taken Africa’s real estate market by storm with millions of dollars in investments.

Residential property in Lagos, a heaving metropolis of around 20 million people, can be among the most expensive in the world with two-bedroom flat costing more than $1 million in upmarket areas.

There are 10.7 million houses in Nigeria and we regard this statistics highly inadequate when compared to the size of the nation (Lamudi, 2015).  To this end, the World Bank has estimated that it would cost as high as N59.50 trillion to bridge Nigeria’s 17 million deficit.

This huge deficit figure may also be viewed as a vast and untapped investment potential of the country’s residential property market.

The Federal Government in recent times has shifted given a fight from physical policy with a focus on capping inflation towards a looser policy aimed at stimulating local economic growth and job creation.  This change in policy has translated to the recent easing of the cash Reserve Ratio by the Central Bank of Nigeria from 31 to 25 percent leading to an estimated N740 billion liquidity injection to the banks. It is hoped that this increase in liquidity will lead to greater lending by banks to the real economy with the hope of a fall in the high lending rate currently prevalent in the property market.

Lending rate in the local market remain stubbornly high at 20 percent and above other than to the bank’s preferred customers.  Such high rates are not sustainable for real estate development which the gestation period in most cases is at least two years before any rental revenues start to accrue.

It must be noted also that a lack of clear petroleum policy, a halving of the oil prices and a move from onshore to deep water drilling have all had a negative impact on International Oil Companies staff strengths and hugely impactful knock on effect on demand in the real estate submarket.

In a report released by the National Bureau of Statistic, 2015, third quarter Gross Domestic Product GDP grew by 2.84 percent year-on-year in real term. This was higher by 0.49 percent than the growth of 2.35 percent recorded in the preceding quarter, yet less than half of the 6.23 percent figure recorded in the same quarter of 2014.  The slowing of the economic has been attributed to the steep fall in the oil price since the beginning of 2014 and the attendant fall in oil revenues over the period.  Real Oil Sector growth increased by 1.06 percent year-on-year in Q3 2015 while the sector contributed 10.27 percent to national GDP growth.  Growth in the non-oil sector was largely driven by the activities of agriculture, financial services, telecommunications, and trade among others.  The non-oil sector grew by 3.05 percent in real terms in the third quarter of 2015 and contributed 89.73 percent to GDP growth over the year leading up to the third quarter.

MCO Real Estate Investment Report, (2015) notes that with considerable investor interest, international investors who have the greatest impact on big ticket real estate transactions have spent the year waiting for greater clarity on the state of the economy.  However, local transactions with little or no exposure to currency risk have continued to thrive.  Development in the middle market residential space, middle market retail space and local hotels still continued to sustain the real estate and construction markets albeit in an economy based on the reduced spending power of the consumer due to economy downturn.

1.2       Statement of the Research Problem

Generally, the global financial crisis has left a remarkable impact on real estate sector of the economy.

Before 2007, there were high and increased lending to the real estate sector leading to the booming and surfacing of modern real estate development (Oladele, 2014).

The financial crisis has its root in credit contraction in the banking sector due to certain laxities in the U.S. financial system.  The crisis which later spread to Europe has now become a global phenomenon.

The financial crisis at the early stage manifested strongly in the sub-prime mortgages because households faced difficulties in making higher payments on adjusted mortgages (Soludo, 2009).

The development led to the use of credit contraction by financial institutions in the U.S. to tighten their standards in the light of deteriorating balance sheets.

The impact of the global financial crisis on residential property market is a veritable basis for it examination.

There is therefore need to examine the impact of global financial crisis as it affects the residential property market of the study area.

Residential property is one type of property that is also hitherto seen as a legacy a parent bequeaths to the offspring.  With the realization that real estate is a major source of capital appreciation and a good hedge against inflation, the real estate market is coming close in popularity and importance to the money and capital markets.

As Nigeria stands on the threshold of establishing a secondary mortgage market to mobilize capital market finance for the primary market, the need to assist real estate investors and professionals with information on the impact of Global financial crisis on residential property market cannot be over stressed.

Although several studies have focused on the impact of Global Financial Crisis on banking sectors in Nigeria, so much cannot be said of its impact on residential property market.

It is recognized that a more focused examination be made to expose the situation in the study area.  It is therefore necessary to ask; what are the impact of the global financial crisis on the study area?  What was the performance of the study area residential property sub-market between 2005 and 2015?  What are the extraneous factors influencing the performance of residential property sub-market of the study area?

These are what this thesis was positioned to explore, thereby contributing to empirical studies on the impact of global financial crisis, with particular focus on the residential property sub-market.

1.3       Research Questions

1.       To understudy the extraneous factors influencing real estate value in the residential sub-market between 2005 and 2015 in the study area.

            2.               To evaluate the performance of residential property market in the study area between 2005 and 2015.

            3.                  To examine market trend in the study area between 2005 and 2015.

4a.       To examine the effect of the recession on the residential sub-market of the study area.

4b.       To examine the factors responsible for global financial crisis and their relevance in real estate value.   

1.4       Aim and Objectives of Study

The aim of this study is to examine the impact of Global Financial Crisis on prime residential property sub-market in Banana Island. The above aim will be achieved through the following objectives:

1.           To understudy the extraneous factors influencing real estate value in the residential sub-market between 2005 and 2015 in the study area.

           2.              To evaluate the performance of residential property 

                      market in the study area between 2005 and 2015.

           3.    To examine market trend in the study area between 2005 and 2015.

4a.  To examine the effect of the recession on the residential sub-market of the study area.

4b.    To examine the factors responsible for global financial crisis and their relevance in real estate value.  

1.5       Significance of the Study

Globalization is an inevitable phenomenon in the history of man that have been bringing the world closer through the exchange of products, goods, knowledge, information and culture. But over the years, the pace of global interpretation has become much dramatic and faster and this is due to the unprecedented and advancements in science, technology, communication, industry and transport. The resultant effect of these advancements are readily observable in the availability of information about market performance particularly those involving real estate investment.

In the wake of the global crisis in 2008, we were told by the administration of our erstwhile economy that the Nigerian economy was hedged against the global financial crisis. This was hinged on the fact that we had just emerged from the euphoria of bank consolidation which increased the capital base of operating banks to a minimum high of N25billion and our huge investment in foreign reserve. Professor Chukwuma Soludo, the then Central Bank of Nigeria Governor declared, “We won’t have economic recession” in the face of the global crisis which created fear over the future of our fragile local economy. However, the current trends have proved otherwise as will be seen later.

This study seeks to identify the extent to which the crisis has affected the real estate market particularly, the residential property sub-market of Banana Island. The significance is established in the provision of the understanding of the extent and the nature of the impact in the periods before and after the property boom and to provide information that will be useful to investors in the Lagos property market. This study is also significant in filling the empirical gap in the knowledge of the impact of the global financial crisis on the prime residential property sub-market in Banana Island. Also there is need to understand the behaviour of the market and its participants to financial crisis.

1.6       Scope of the Study

Ideally, a study of this nature should cover all the prime residential locations in Lagos metropolis but time and cost will prove to be serious constraints in an attempt to do this. This study has therefore been confined to the prime residential area of Banana Island. These locations are the areas with the highest property transaction prices in Lagos before the global financial crisis.

The scope of issues to be examined in this study ranges from property prices (sales and rentals), a set of macroeconomic indices such as Foreign Direct Investment (FDI) figures, Consumer Price Indices, prevailing interest rates during the period of study etc. Perception of stakeholders in the selected residential property submarket of Banana Island will also be considered. These stakeholders include Estate Surveyors and Valuers with properties in the study area, Institutional investors, Fund Managers, High class tenants in the study areas, Lending Institutions and Property developers in the area.

1.7       Study Area

Banana Island is in Lagos State and Lagos is one of the largest cities in the world. With a population that is estimated at 15 million, it is experiencing an annual growth rate of nearly 6%. It is home to Nigeria’s principal commercial sea and airports and over 45% of the country’s skilled workforce is resident in the State. Lagos State lies approximately between Longitudes 2042E and 3042E and Latitudes 6022N and 6052N. The 180km long Atlantic coastline forms the Southern boundary of the State while its Northern and Eastern boundaries are shared with Ogun state. On the Western side, the Republic of Benin borders the boundary (Balogun, 1999). Lagos metropolis occupies 2,910 square kilometers out of the 3,577 square kilometers land area of Lagos state. Lagos Metropolitan contains the largest manufacturing sector and provides employment for over 45% of the skilled man-power of the country (World Bank, 2002).

It is the nodal point of all transport modes (air, water, road and rail) in which road transportation is the most predominant and most utilized within the Metropolis (Oni, 1992). According to Reports, by 2015 Lagos is expected to become the world’s third largest City with 25million inhabitants growing at a rate of six per cent per annum.

Banana Island is an artificial Island off the foreshore of Ikoyi, Lagos, Nigeria. Banana Island is 8.6 kilometers east of Tafawa Balewa Square. Part of the Lagos Local Government Area of Eti-osa in central Lagos. According to (2013) it is known for its wealthy, multicultural community and has some of the most expensive real estate in Nigeria. It has one of the highest density of millionaires with it boundaries.

Banana Island is a man-made Island in Lagos state, Nigeria that is slightly curved is shape like banana. It is located in Lagos Lagoon and is connected to Ikoyi Island by a dedicated road which is linked to the existing road network near Parkview Estate. According to this day and the the Island was constructed by the Lebauese- Nigeria Chagoury Group I partnership with the Federal Ministry of works and Housing and is considered on par with the seventh Arrondissement in Paris, La Jolla in San Diego, and Tokyos’ Shibuya and Roppongi neighborhoods. The Island occupies a sand-filled area of approximately 1,630,000 square metres and is divided into 536 plots (of between 1000 and 4000 square meters in size) main arranged along cul-de-sacs, so designed to enhance the historically residential nature of Ikoyi. The Island is a planned, mixed development with dedicated areas for residential, commercial and recreational activities. On the residential side of the Island, planning permission is not granted for dwellings over 3 storey’s high.

Residents are provided with world class utilities including underground water supply network, underground electrical systems (versus the overhead cabling common throughout Lagos), treatment plant, central sewage system, satellite telecommunications networks and street, lighting according to the (2014).

The Island hosts several high and residential developments such as Ocean Parade Towers (a series of 14 luxury tower blocks strategically located at one end of the Island to take advantage of 180 degree panoramic views overlooking the lagoon.


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