A Comparative Analysis Of Rental Variation In Residential And Commercial Properties In Nigeria (A Case Study Of Ogui New Layout Enugu)

A Comparative Analysis Of Rental Variation In Residential And Commercial Properties In Nigeria (A Case Study Of Ogui New Layout Enugu)

Abstract

This research has investigated in to a comparative analysis of rental variation in residential and commercial properties in Ogui New Layout, Enugu Nigeria.

The researcher used both questionnaires, interview and self observation as method of data collection. The data was collected among some landlords, Estate agents of the selected properties.

The data collected was analyzed based on interpretation and conclusion made.

Chapter one treats the introduction of the project work, chapter two Literature Review, chapter three. Research methodology, chapter four data presentation, analysis and interpretation and chapter five finding, recommendation and conclusion.

Finally, rental variation in commercial and residential properties have been discovered to be influenced by certain factors affecting the rents passing on these properties.

Chapter One

1.0 Introduction

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 persons 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 centres, 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 between 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 refection of the profitability or utility derivable from it 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 as a case study.

1.3 Purpose of the Study

The main purpose 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.

In order to achieve the standard goals, the following objective are to be undertaken;

1. To identify the current level of rents for commercial and residential properties in the study area.
2. To ascertain and examine the factors influencing the rents being commanded by these properties.
3. To specify the implications of rental variation on decisions to acquire those properties.
4. To determine the trend in rental values for residential and commercial properties in the study area.

1.4 Research Hypotheses

To aid the completion of the study, the following research hypotheses were formulated by the researcher;

1. H0: the level and price of rent on commercial property in the study area is high
   H1: the level and price of rent on commercial property in the study area is low
2. H02: the trend of residential and rental property in the study area is high
   H2: the trend of residential and rental property in the study area is low

1.5 Significance of the Study

The finding of this study will be of benefit to the following;

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. For example residential and commercial use.

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 and Limitation 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, Enugu

a) Availability of Research Material:

The research material available to the researcher is insufficient, thereby limiting the study

b) Time:

The time frame allocated to the study does not enhance wider coverage as the researcher has to combine other academic activities and examinations with the study.

c) Organizational Privacy:

Limited Access to the selected auditing firm makes it difficult to get all the necessary and required information concerning the activities.

1.7 Operational Definition of Terms

Renting

Renting, also known as hiring or letting, is an agreement where a payment is made for the temporary use of a good, service or property owned by another

Residential property

A residential area is a land used in which housing predominates, as opposed to industrial and commercial areas. Housing may vary significantly between, and through, residential areas.

Rental property

Also known as hiring or letting, is an agreement where a payment is made for the temporary use of a good, service or property owned by another. A gross lease is when the tenant pays a flat rental amount and the landlord pays for all property charges regularly incurred by the ownership

1.8 Organization of the Study

This research work is organized in five chapters, for easy understanding, as follows

1. Chapter one is concern with the introduction, which consist of the (overview, of the study), historical background, statement of problem, objectives of the study, research hypotheses, significance of the study, scope and limitation of the study, definition of terms and historical background of the study.
2. Chapter two highlights the theoretical framework on which the study is based, thus the review of related literature.
3. Chapter three deals on the research design and methodology adopted in the study.
4. Chapter four concentrate on the data collection and analysis and presentation of finding.
5. Chapter five gives summary, conclusion, and recommendations made of the study

Chapter Five

Summary, Conclusion and Recommendation

5.1 Introduction

It is important to ascertain that the objective of this study was on a comparative analysis of rental variation in residential and commercial properties in Nigeria.

The relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenges of rental variation in residential and commercial properties in Nigeria.

5.2 Summary

The research has shown that commercial property investment performed better than residential property during the period of measurement. The results clearly identified commercial property as a more attractive form of investment option. In terms of means annual return, risk adjusted return, income growth and capital appreciation, commercial property performed better. In terms of risk, the results revealed that both residential and commercial property investment are somewhat risky in the study area. However, the residential property with the co-efficient of variation is more risky than commercial property with co-efficient of variation.

5.3 Conclusion

Real GDP growth and vacancy rate are the major determinants of rental growth in the office property market in Abuja as they account for about 83% of the variation in office property rents in the commercial property market in the city. Also, Rental index for office properties in Abuja using 2001 as the base year indicates progressive upward movement in rental values of office properties in the city within the study period. The implication of this progressive upward rental movement is that office rent in the city has the capacity to perform as a hedge against inflation, particularly in fluctuating economic environmentConclusiondrawn from this study is that, while both residential and commercial property investment performed well with positive mean returns throughout the period, commercial property out-performed residential property not only in terms of return but also in terms of risk adjusted return. However, the danger if the trend is not checked is that the supply of retail commercial property may soon overtake the demand, leading to the problem of void, while the resultant scarcity of the residential properties may lead to acute housing shortage and associated problem. The federal government should encourage the investors in residential property through changes in monetary and fiscal policies to enhance residential property development.

5.4 Recommendations

Haven completed the study, the researcher recommend that there is therefore the need for investors and professional managing agents to devote much effort to the investment in purpose-built office space, in the area of development and management respectively, so as to maximize returns on investment.

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