This research investigates the impact of environmental sustainability on the market values of residential properties in Abuja, Nigeria.

Objectives

1. To quantify the impact of critical environmental sustainability features on market values across diverse locations and property segments in Nigeria.
2. To analyze the influence of socio-economic factors and market perceptions on potential homeowners’ valuation of sustainability features.
3. To identify and assess potential barriers and challenges to adopting environmental sustainability features in Nigerian residential construction.
4. To develop evidence-based recommendations for stakeholders, including real estate developers, policymakers, and homeowners, to promote the effective adoption of sustainability features in the Nigerian housing market.

LITERATURE REVIEW

Real estate constitutes a major component of global wealth, with approximately half of the world’s $48 trillion assets being property assets (Zucman, 2019). Land accounts for 50-75% of national wealth in most countries (Klimova et al., 2021). Beyond housing, real estate provides space for recreation, commercial activities, and production. Property is also a significant portion of corporate balance sheets and is commonly used as collateral for debt. Real estate is a major component of Nigeria’s economy, with land and housing accounting for a significant portion of national wealth (Echekoba & Ananwude, 2016). The built environment also poses sustainability challenges through energy and resource consumption. However, research on sustainability integration in Nigeria’s real estate sector is limited, especially regarding implications for property valuation. This literature review analyzes existing studies on the impacts of environmental sustainability features on residential property values.

International evidence demonstrates links between sustainability attributes and higher property values, primarily in developed markets. A survey by Ciaramella (2019) found limited appreciation for sustainability investment value among UK institutions and lenders. Property appraisers were also unsure how environmental benefits affect building value and excluded sustainability factors from valuations. This undervaluation of sustainable real estate disincentivizes sustainability integration in design and construction (Durica et al., 2018). The mismatch between sustainability returns and short-term investor focus further hinders the adoption of sustainability practices (Robinson, 2005). Properly accounting for sustainability attributes in property valuation is thus essential for motivating sustainable real estate investment and development (Mulliner et al., 2016).

Several studies have demonstrated financial benefits to sustainable and energy-efficient buildings, using evidence from developed country real estate markets. For example, Suh et al. (2019) analyzed green-certified office buildings in the United States. They found a rental premium of 2.8% and a sales price premium of 16% for buildings with Energy Star and LEED certifications compared to non-certified buildings. Another study by Bruegge et al. (2016) focused on the apartment market, finding evidence of a 20% rental premium for ENERGY STAR-rated units compared to otherwise identical units without the rating. The financial outperformance indicates that occupiers and investors value sustainability features in these markets.

However, there needs to be more examination of whether such sustainability valuation effects apply in emerging real estate markets. Some initial studies have been conducted recently in developing country contexts. For instance, Hoffman et al. (2020) analyzed office buildings in South Africa, finding that buildings with a 4-star Green Star SA rating achieved windfall gains of 6.9% compared to buildings without the certification. Ma et al. (2019) found that green building labels and modeled energy efficiency levels increased sale prices by 5.9% and 8.1% in China’s residential market, respectively. However, evidence from sub-Saharan Africa still needs to be provided so far. Addae-Dapaah et al. (2019) argue that research is needed on sustainability preferences and willingness to pay among Africa’s growing middle- and upper-income populations. The ability to capture premiums for sustainable real estate in developing countries has important implications for motivating increased green investment.

Some studies in developing countries highlight the importance of reliable electricity access alongside typical green features. For example, Bui (2020) analyzed the residential rental market in Vietnam and found households were willing to pay 2-5% higher rent for properties with more reliable electricity from the grid. Similarly, Dankwah (2018) found that apartments in Accra, Ghana, with backup generators or solar panels to compensate for unreliable grid power, commanded 8-10% rental premiums.