Assessment Of Factors Influencing Variation In Rental Value Of Residential And Commercial Properties
1.1 Background of the Study
Shelter is a basic necessity in life. An individual can satisfy this need by either occupying his own (owner’s occupier) property or renting another person’s property. In our traditional society, the need for shelter is mainly met through the first alternative that is owner occupation. With the emergency of urban centers’, the situation has changed. Many people are no longer about to own property because of the difficulty in the acquisition of land and the high cost of building construction. Therefore, they are left with the alternative of renting other people’s properties in order to satisfy their need for shelter. Consequently two classes of urban resident have emerged, the landlord and the tenant under this arrangement the tenant pays to the landlord a certain amount of money in consideration for his use of the landlord’s house. This amount is popularly known as rent.
During the civil war the Nigeria that is 1966 to 1970 many landed properties in the urban areas of the former Eastern Region of Nigeria, including Enugu, were destroyed. Consequently, there was a sharp decline in the supply of landed properties after the war. Furthermore, the post – civil war period witnessed an unprecedented number of the rural population trooping into the urban centres due to the conspicuous prosperity brought about in the urban area by the oil boom. This resulted to high demand for the existing limited supply of landed properties.
Consequent upon these, rent for landed properties increased considerably.
This trend has continued with the effect that “the average worker is paying 30% to 40% of his salary as rent” (Oshadiya, 1985). Thus the increase in rents on the properties has led to the variation of rent on properties.
In urban area due to location advantage (for example prime location) which some properties offer above others for commercial and residential uses, rent tend to very on account of the type of use which a property can offer.
1.2 Statement Of Problem
Location of economic properties has been a difficult concept to understand. Although the primary objective of commercial properties is the derivation of financial gains, while that of residential properties is for habitation, shelter and comfort, the demand for land is a reflection of the profitability or utility derivable from its use. The greater the benefit to be obtained from a particular use, the higher the rent that the user will be willing to pay for it.
There appear to be wide ranging differences in the levels of rent passing on residential and commercial properties in Enugu and Nigeria generally.
This research is seeking among other things to find out the causes of rental variation in commercial and residential properties in Nigeria, Ogui New Layout and G.R.A as a case study.
1.3 Aim and Objectives of the Study
The main aim of this research is to examine the reasons for rental variation in commercial and residential properties with a view to provide tool to be used in catching issues related to rent on these properties in Enugu and Nigeria generally.
To achieve the standard goal, the following objectives are to be pursued;
- To identify the level of rents for commercial and residential properties in the study area.
- To ascertain and examine the factors influencing the rents being commanded by these properties.
- To determine or examine whether the income of prospective buyers/tenants affect their decision to acquire properties.
- To ascertain if there is disparity in rental values for residential and commercial properties in the study area.
- To find out the rate of demand between commercial and residential properties?
1.4 Research Questions
- What is the level of rent for commercial and residential properties in Ogui New Layout and G.R.A respectively between years 2002-2004?
- What are the factors influencing rents passing on those commercial and residential properties.
- Does the income of prospective buyers/tenants affect their decision to acquire properties?
- Is there any disparity in the rental value or rent passing on residential and commercial properties in the study area?
- Amongst properties put for Commercial and Residential use, which is on a higher rate of demand?
1.5 Significance of the Study
The finding of this study will be of benefit to the following groups;
Firstly, tenants who are charged rents based on different reasons, especially when the properties are of the same nature (physically). This will again enable the investors not only to understand how occupier thinks, but also why and the things they consider before acquiring properties for certain uses.
Secondly, the generality of the public can now understand the reason why the rents being commanded by these properties have to differ.
Lastly, this research work will help to determine the factors influencing, commercial and residential properties which is an essential pre-requisite to successful development as well as stimulating interest in the students to carryout out further research on the topic.
1.6 Scope Of the Study
The study covers a period of three years (2002 to 2004) and it is restricted to selected properties (Residential and commercial) comprising blocks of flat and tenements in Ogui New Layout and G.R.A, Enugu.
1.7 Limitations of the Study
Expectedly, this work met with some hindrances during the stage of data collection. The issue of rent passing on a property (residential or commercial) is usually regarded as classified information, which is not easily disclosed to people particularly researchers. This was largely suspected to be the reason why some Estate surveyors, property owners, tenants, Estate firms, property companies and even Estate agents who were approached through oral interviews, discussions and visitations found it rather difficult to reveal essential information despite every explanation that the exercise is strictly for academic purposes, a good number of them, still nursed the fear that it may be for property rating and taxation purposes.
There was also the problem of logistics occasioned by the society. The researcher worked with a very light budget throughout the period of study as the frequent and repeated visits to relevant persons and offices entailed quite some money. Moreover, also recall that some of the interview respondents were not co-operative as they kept on playing to the gallery as a means of avoiding supplying the required information. On a general note however, the researcher ensured that these bottle – necks never affected the findings of this study since the success far outweighed the hindrances as enumerated.
1.8 Overview of Study
Chapter one treats the introduction of the project work. Chapter two deals with literature review, chapter three treats the research methodology, chapter four is on data presentation, analysis and interpretation and chapter five deals with findings recommendation and conclusion.
1.9 Definition of Relevant Terms
The universal dictionary of the English language (1971) defined rent as the regular payment made for the use of land or buildings that belongs to someone else. The Economist defined rent as “the revenue from land resources that is equal to the value of its marginal services rendered in a productive process” (Richfield, 1974).
In summary therefore, the word rent is that fixed periodic payment made by a tenant to his landlord for the exclusive possession and use of leased property. PROPERTIES: According to the High Court, the Court of Appeal and the Supreme Court, property is the right to possession, enjoyment and disposition of all rights and things subject to ownership.
Property is therefore a legal right expressing the relationship between a person, the owner and his possession of the thing owned.
A Residential Property:
According to Kilpatrick (1999) is a land use in which housing predominates, as opposed to industrial and commercial areas. Housing may vary significantly between, and through, residential areas. These include single-family housing, multi-family residential, or mobile homes.
According to Malys (2012), this refers to buildings or land intended to generate a profit, either from capital gain or rental income. It includes office buildings, industrial property, medical centers, hotels, malls, retail stores, farm land, multifamily housing buildings, warehouses, and garages. In many states, residential property containing more than a certain number of units qualifies as commercial property for borrowing and tax purposes.
5.0 Summary Findings, Recommendation and Conclusion
From the research carried out, the following findings were derived.
- That rent passing on residential properties varies/differs from the rent passing on commercial properties as indicated in figures 1 and 2.
- That there is a positive change between rent and the use to which a property is put.
- That there is a higher demand for residential properties than commercial properties in the study area.
- That the rent of residential and commercial properties varies due to some factors like location, condition of the properties, demand for property/land use, price of construction materials, and size of the property.
- That the level of rent for residential properties is higher than that of commercial properties.
The research findings provide working tools in estate management practice in relation to determination of property values. It is therefore, recommended that:
- The practicing Estate Surveyors and Valuers should know that in fixing of rent, the rent passing on residential and commercial properties should not be the same.
- Property owners should always make rent passing on residential properties a bit higher than rent passing on commercial properties largely on the account of the use the property is put.
- Owners of properties should always put their properties to its highest and best use which as the findings revealed could be residential or commercial.
- Rent for commercial properties are best measured by per square metre (M2) while rent for residential are measured taking into consideration the number of rooms or flats provided.
From overall result of this work the reality is that there are certain factors that affect rent paid on properties. These factors determine the increase or decrease in rent charged by landlords. From this, it is not possible to say that the rental value of a property is the exact rent charged on the property because there are several factors that can affect rent charged. Similarly all properties in a certain area do not command the same rent because it is not the same factors which affect one property that affects the other. In every property one looks at the factors surrounding it, before determine that rent it can command.
Considering these factors, it is now possible that the rent paid for one property will not be the same for the other. One significant factor that brings about differences in rent is the use to which a property is put.
Conclusively, the result of the analysis indicates that rent passing on residential properties is higher than the rent passing on commercial properties.
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