Assessing the impact of marketability study on the profitability of residential real estate investments
Naigaga, Patricia Joanita
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Marketability study is the process that investigates how a particular piece of property will be absorbed, sold or leased under current or anticipated market conditions. Residential Real Estate investment represents a significant portion of people’s wealth and this is especially true for many real estate investors. Real Estate investment plays crucial role in providing employment opportunities, offering shelter to households, enhancing income distribution and alleviating poverty. However, the investment in Uganda continues to fail as a result of high vacancy rates leading to low profitability levels and this is attributed to lack of marketability study before investment is done. The study sought to assess the impact of marketability study on the profitability of residential real estate investments, to determine the factors considered when carrying out marketability studies, to determine factors that affect profitability levels of residential real estate investments, to determine the relationship between marketability studies and profitability of residential real estate investments. The study focused on residential real estate developments in Kampala Central Division in selected areas i.e. Nakasero, Kololo, and Bukoto. A total sample of 70 respondents including property owners (landlords), property managers, real estate agents (brokers), and property developers were consulted. The study involved the use of a semi structured questionnaire which contained open and closed ended questions for the collection of primary data. Secondary data was obtained from published textbooks, unpublished scholarly works. Data analysis was done using Microsoft Excel. The descriptive statistics selected for this study included frequencies and percentages. Data collected was represented in form of pie charts, graphs, tables and percentages. From the study analyzed, it was concluded that marketability study positively impacts on the profitability of residential real estate investments. It is evident that a large number of property owners and developers who carry out adequate research before going ahead to implement their proposed projects do have a higher profitability level as they have high absorption and occupancy rates compared to those properties developed merely on speculative basis; maintain a high level of customer satisfaction as they ensure the real estate product meets the need of the targeted clients, take a relatively short period to re-let their properties and this is attributed to marketability studies carried out as potential tenants easily identify the particular property as compared to other properties. The factors that should be considered while carrying out marketability study include among others:- location or accessibility of the property by potential tenants, demographic characteristics of the target population, Nature of the neighborhood preferably a quiet residential neighborhood, market prices for similar properties;-as they affect occupancy rates and rental income hence the profitability of residential real estate investments. The factors that affect profitability levels of residential real estate analysis include among others: Operating costs such as utilities, maintenance, taxes, increase in similar investments therefore high competition which consequently affects the occupancy rates of the residential property, Interest rates on high bank loans, legal regulations e.g. investment license required, and high level of services demanded for by the tenants. Finally the study recommended that investors who invest on a speculative basis should carry out marketability studies so as to meet the need of the target population, maintain a high level of customer satisfaction, high absorption and occupancy rates and hence high profitability levels; a database containing demographic characteristics of different areas be generated for reference when required during market research as some of the challenges faced by investors who carry out residential real estate investment are unavailability of sources of information and demand for logistics by their respondents when carrying out market research; government should institute laws that guide activities of real estate agents in order to reduce the level of information asymmetry thus lowering the risk of moral hazards and adverse selection; that government should regulate interest rates on loans for residential real estate investments as these affect profitability levels of residential real estate investments.