INVESTMENT RISKS AND RETURNS IN THREE-STAR HOTELS IN ENUGU CITY, SOUTH EAST NIGERIA

Abstract

The measurement of risks and returns are the variables for determining the performance of real estate investments. Risk is the probability of variation between actual and expected outcomes, while return is the profit realized from investment. Factors such as capital expenditure, operating expenditure, location, and scale are important variables in hotel investment. However, since this study concentrates on three-star hotels, scale was not considered as all hotels under consideration were of the same scale. This study analysed the risks and returns of investment in three-star hotels in Enugu city between 2015 and 2024 by calculating the Arithmetic Mean Return (AMR), Standard Deviation (SD), and Coefficient of Variation (COV) over the period. From a study population of fifty (50) three-star hotels in seven (7) locations in the city namely: Independence Layout, New Haven, Ogui Road, GRA, Trans Ekulu, Ebeano Tunnel, and Abakpa Nike, seven (7) hotels were selected,one from  each location for the study. Data on the net annual income and capital values of the hotels between 2015 and 2024 were obtained through questionnaires sent to the general manager of each of the selected hotels. The results of the study found an inverse relationship between risks and returns among hotels with high capital values; risks were high while returns were lower. Hotels located in the city centre also had less returns due to higher expenditure and competition associated with central location. The study recommends that hoteliers should increase their returns and reduce risks by reducing their capital and operating expenditure.