A Critical Analysis Of The Effects Of Economic Variations On Real Property Management

Project and Seminar Material for Environmental Science

A Critical Analysis Of The Effects Of Economic Variations On Real Property Management


Abstract


The real property market constitutes an integral part of the general business economy. The two sectors are so closely related that trends in the business economy may come from or result in changes in the real property market. This work is an attempt to gain an insight into the nature and conditions of the property market under the prevailing economic changes in Nigeria. The resulting problems which have contributed greatly to making real property management a difficult task are highlighted in this work. Hence, the purpose of this study was to critically analyze the effects of economic variations on real property management using Onitsha property market as a case study.

The study was able to discover the major causes of economic problems in Nigeria and possible solutions were proffered. Estate Surveyors and Valuers were advised on how to deal with some of the effects of economic variation on Real Property Management. The study also sought to enlighten the public on the importance of the roles of Estate Surveyors and Valuers in the real estate sector of the economy.

Recommendations were made to Estate Surveyors towards improving Real Property Management practice in Nigeria. Data on which analysis are based were mainly from administration of questionnaires, oral interviews, personal observations and collection of relevant information from textbooks, journals and papers. The population of the study was fifty (50) practicing Estate Surveyors in Onitsha. Out of these Estate Surveyors, forty (40) of them were drawn through stratified random sampling technique. Forty (40) questionnaires were administered; out of which thirty-eight (38) were used for the analyses.

Chi-square (x2) test statistics was used to test the hypothesis of the study, which states that there is significant negative effect of Economic Variations on Real Property Management in Onitsha. The result of the study revealed that economic variations in Nigeria have adverse effects on real property management in Onitsha. The test statistics showed that at 0.05 level of significance (X2 cal.=44.2500, X2 tab.=5.991), there was a significant negative effect of economic changes on real property management in Onitsha. The study revealed that the major cause of economic variations in Nigeria was over-dependence on Petroleum and its allied products at the expense of Agriculture and other sectors of the economy. Inadequate planning of various government recovery policies worsened the situation in the market. These policies had adverse effects on per capita income of the people. There was no co-ordination in pricing system, therefore, the prices of goods and services increased discriminately. The deregulation of interest rate made borrowing for investment purposes very costly. Incessant political, social and religious hostilities disrupted Nigerian economy. Sometimes, problems in the global economy caused economic changes in Nigeria. The study identified the effects of these economic problems on Real Property Management as tedious rent revisions, under estimation of maintenance costs, higher incidence of rent defaults, stagnant rents, delayed maintenance, unrealistic forecasting etc.

To stabilize Nigerian economy, more attention should be given to Agriculture and other sectors. The government should come up with measures to solve incessant political, ethnic and religious crises which discouraged foreign investors. The principles of checks and balances should be fully implemented among the three arms of government to check the problem of mismanagement of public funds by those in leadership positions. Estate Surveyors and Valuers operating in a variable economy should analyze and recognize trends in the market to enable them manage economic fluctuations and crises.


Table of Contents


  • Page
  • Title
  • Approval
  • Certification
  • Dedication
  • Acknowledgement
  • Abstract
  • Table of Contents

Chapter One

Introduction

  • 1.1 Background of Study
  • 1.2 Research Questions
  • 1.3 Purpose of Study
  • 1.4 Objectives of Study
  • 1.5 Hypothesis Formulation
  • 1.6 Relevance of Study
  • 1.7 Scope of Study
  • 1.8 Limitations of Study

Chapter Two

Review of the Related Literature

  • 2.1 Economic Variations
  • 2.2 Real Property
  • 2.3 Real Property Management
  • 2.4 Real Property Market
  • 2.5 Real Property Market Analysis
  • 2.6 Supply and Demand Analysis
  • 2.7 Evaluation of the Market Data

Chapter Three

Research Methodology and the Study Area

  • 3.1 Research Method Used
  • 3.2 The Research Population
  • 3.3 Sources of Data
  • 3.4 Data Collection Procedures
  • 3.5 The Study Area
  • 3.6 Land Use Pattern
  • 3.7 Classification of Residential Area in Onitsha
  • 3.8 The Characteristics of Low, Medium and High Density Areas
  • 3.9 The Participant in Real Property Management In Onitsha
  • 3.10 The Real Estate Frame Work of Onitsha
  • 3.11 The Physical Frame Work
  • 3.13 Institutional Frame Work
  • 3.14 The Economic Frame Work

Chapter Four

Presentation and Analysis of Data

  • 4.1 Analysis of Questionnaire Responses
  • 4.2 Hypothesis Testing
  • 4.3 Relationship Between The Economy And Real Property Management
  • 4.4 Illustration of The Economic Variations With The Rental Market
  • 4.5 Who is A Property Manager?
  • 4.6 Functions of A Property Manager
  • 4.7 Practical Demonstration of Real Property Management Procedures
  • 4.8 Format for Preparation of Statement of Account for Landlords
  • 4.9 General Overview of The Contemporary Nigerian Economy
  • 4.10 Causes of Economic Variations In Nigeria
  • 4.11 Peculiarities of Real Property Management In The Study Area
  • 4.12 Critical Analysis of The Effects of Economic Variations On Real Property Management In The Study Area
  • 4.13 Suggested Measures For Better Performance

Chapter Five

Summary of Findings, Recommendations and Conclusion

  • 5.1 Summary of Findings
  • 5.2 Recommendations
  • 5.3 Conclusion
  • References
  • Appendices

Chapter One


Introduction

1.1 Background of Study

The Nigerian civil war which took place between 1967 and 1970, disorganized all sectors of the economy. According to Okongwu (1986, p.11) if we exclude the civil war experience, cyclical swings in oil receipts exerted marked influence from 1974. The petroleum sector exhibited an increasing and dominant influence as regards contributions to government revenue, rising from 1% in 1960 to over

80% as of now. At the same time, partly because of the vagaries of oil, we have now forcefully rediscovered what we had really known all along: that this excessive reliance on crude petroleum exports, this essential replacement of the previous composite vector of “traditional” primary exports with the single, though more lucrative, crude oil vector, does not provide secure foundations for prosecuting deliberate development policy.

Much reliance placed on petroleum and its allied products was the main cause of our economic problems. Moreover, the gains from oil boom were not wisely utilized owing to lack of foresight. At a point in time, our economy became import and consumption oriented. So, when the oil glut hit, we were caught napping. The oil glut is a situation in the oil market where the oil supply substantially exceeds its demand. We became a debtor nation; fell from boom to recession and from grace to grass. The mismanagement of our foreign reserves and public funds and excessive government recurrent expenditure also contributed to our economic problems.

Government economic recovery policies in the short time worsened the situation in the market. Such policies include the Austerity Measure of 1982; Economic Emergency Programme of 1985; the Structural Adjustment Programme of 1986;

Second Tier Foreign Exchange Market; increase in Local Fuel Price to get more revenue for the government, Banning of some imported goods without giving a reasonable period of time to adjust, etc. These policies resulted to serious variations in every sector of the economy.

The study considered the effects of these changes on real property management with a special focus on the Onitsha property market.


1.2 Research Questions

The researcher intends to examine the following questions:

  1. What is the origin of economic problems in Onitsha as they affect real property management?
  2. What are the major causes of economic changes in Onitsha?
  3. Is there any relationship between the real estate economy and the general business economy?
  4. What are the effects of economic changes on real property management in Onitsha?
  5. Is there specialist in real property management?
  6. What are the major functions and roles of this specialist?
  7. What measures are to be taken by Estate Surveyors operating in a variable economy to achieve positive results?
  8. What procedures should be followed in real property management practice?

1.3 Purpose of Study

Nigerian economy has been unstable since her independence in 1960 due to some factors. Instability in the economy has been provoking some changes in every sector. It is the purpose of this study to critically analyze the effects of economic changes on real property management with focus on Onitsha property market.

It is also the intention of the study to guide Estate Surveyors operating in a variable economy on the possible ways to cope with the situation to achieve positive results.


1.4 Objectives of Study

The specific objectives of this research are:

  1. To investigate the major cause of economic problems in Ontsha as they affect property market;
  2. To suggest possible ways to revamp Onitsha real property market;
  3. To establish the relationship between the real estate economy and the general business economy;
  4. To ascertain the effects of economic variations on real property management in Onitsha;
  5. To encourage Estate Surveyors to always analyze the real property market to enable them manage economic fluctuations and crises;
  6. To emphasize the need for employing professional Estate Surveyors in both private and public sectors to offer advise and render property management services in order to make the life of the real property to last longer especially, at this time of economic problems.

1.5 Hypothesis Formulation

For the purpose of verification and possible confirmation, this hypothesis is formulated and postulated as follows:

HO: Economic Variations do not have impact on real property management.

HI: Economic Variations have impact on real property management.


1.6 Relevance of Study

Having identified the major causes of economic problems in the study area, recommendations were made to boom the economy.

The study shall encourage the Estate Surveyors and Valuers in the study area to be conversant with the market to enable them manage the effects of economic changes on real property management.

The study shall also enlighten the public to appreciate and patronize the professional services of Estate Surveyors and Valuers which are not very well known.


1.7 Scope of Study

The study traced the origin of the economic problems in Nigeria and suggested possible solutions. The policies of the government to revamp the economy led to economic changes. The effects of these economic variations on real property management especially, in Onitsha property market, are vividly emphasized. The relationship between the real estate economy and the general business economy was critically examined. The work reviewed the functions and responsibilities of a property manager; and also, the real property management procedures were demonstrated practically.


1.8 Limitations of Study

Some factors militated against the success of this work, though the researcher endeavoured to accommodate them. Thus, some of the constraints inherent in the course of carrying out the research include, among others, the peculiar nature of real property market. It is not like commercial markets where one can easily come

face to face with both the buyers and sellers to get information he wants. In real property market, information are not easily circulated among Estate Surveyors. Vital information required by the researcher from some respondent Estate Surveyors were not collected due to pressure of work and other commitments facing them during the time the researcher required those information.


Chapter Five


Summary of Findings, Recommendations and Conclusion

The Central problem of our present national economic state is that oil and gas exploration and extraction continues to remain, after a quarter of a century of intensive, highly profitable experience, not a true sector of the Nigerian domestic economy but essentially an enclave activity within the territorial (geographical) bounds of Nigeria, an enclave but true sector of the industrial centers of the international economy (furnishing them with raw materials – oil for now and later also, if they wish, gas and investment profits for industrial growth), with no real link with the Nigerian domestic economy. Deprived of any real stabilizing links with the oil enclave, the economy is exposed to the full dynamics of the destabilizing effects of the investment in the enclave as well as to the vagaries of the international oil cycle. This central problem is deep and severe in its manifestations, adversely affecting every sector of the Nigerian economy, every aspect of the society including behaviour patterns (Okongwu 1986, p.429).

The chapter stated discoveries made in the study and some recommendations are given to revamp our dwindling economy. The implementation of these recommendations shall ease real property management practice in Nigeria.


5.1 Summary of Findings

Some findings made by the researcher are as follows:

  1. Nigerian economy depends more on oil for the bulk of its export than on any other product. Agriculture and other sectors are neglected. This was the origin of our economic problems.
  2. The importation of fuel and other petroleum products which their raw materials are got in Nigeria is not in the best interest of the Nigerian economy.
  3. Policy discontinuities arising from administrative changes has been contributing to economic variations in Nigeria.
  4. Corruption and malpractice in the electoral process are dangerous canker to our economic development. Money and time spent on election tribunals and repetition of elections could have been used to develop other sectors of the economy.
  5. Mismanagement of our resources by our leaders, ethnic and political crises are seriously contributing to complicating our economic problems.
  6. There are features of economic variations in Nigerian economy.
  7. The real property market has a direct relationship with the general business economy. A change in one sector affects the other.
  8. Economic variations in Nigerian economy negatively affect the Real Property Management practice.
  9. Foreign investors are yet to have enough confidence in our economy and security network.
  10. Inadequate planning of various government recovery policies worsened the situation in the market. These policies had adverse effects on per capita income of the people.
  11. There was no co-ordination in pricing system, therefore, the prices of goods and services increased discriminately.
  12. The deregulation of interest rate made borrowing for investment purposes very costly.
  13. Sometimes, problems in the global economy caused economic changes in Nigeria.
  14. The study identified some effects of economic variations on Real Property Management as under estimation of maintenance costs, tedious rent revisions, higher incidence of rent defaults, stagnant rents, outright default of rent, delayed maintenance, unrealistic forecasting, etc.

5.2 Recommendations

In order to ensure that the above raised issues are tackled, the following recommendations are hereby proffered:

  1. More attention should be given to the agricultural and other sectors of the economy. The money budgeted every year for Agriculture and enhancement of other sectors such as tourism, technology, etc, should be increased proportionately. This measure will make our Agricultural sector to be more productive which shall drastically reduce excessive expenditure on the importation of food every year.
  2. Without political, ethnic and religious stability, there would be no economic development. The government should come up with measures to check incessant political, ethnic and religious crises which scare foreign investors.
  3. The principles of checks and balances should be fully implemented among the three arms of government to check the problem of mismanagement of public funds by those in leadership positions.
  4. The government should make our refineries functional and individuals should be allowed to build private refineries. This measure shall stop the importation of fuel and other petroleum products. The local prices of these products shall be reduced and our foreign reserve shall further be increased proportionally.
  5. An unmaintained property portfolio causes management problems for the Property Manager. Nigerian Institution of Estate Surveyors and Valuers should be engaged on massive enlightenment programmes to educate property owners on the need to make provisions for maintenance services. The Institution should also sponsor a bill restricting the operation of quacks because most of the property owners in the study area cannot differentiate a professional Property Manager from a quack.
  6. Any government policy affecting buying and selling should be handled carefully. Adequate notice should be given to enable the affected traders to change line of business. Management problems created by non-payment of rent by traders which form over 80% of tenants in the study area can be curtailed.
  7. The government should take necessary measures to industrialize the nation to reduce mass unemployment which has now reached alarming proportions and involves all categories of labour – skilled and unskilled persons, university graduates and specialist individuals. Unemployment in the context includes also the disguised unemployment of the armies of street hawkers now so evident in our urban areas. It represents a distinct waste of human resources embodied in the individuals and their productivity potentials which the public policy cannot tolerate. Moreover, it promotes social instability which has a negative effect on our economy.
  8. The “get-rich-quick” attitude of some various financial institutions and individuals should be checked by the government.
  9. Advancing the technological development of the nation is very necessary. This will go a long way in improving the quantity and quality of the nation‟s total output.

5.3 Conclusion

The management roles of Estate Surveyors and Valuers sum up to issuing counsels during development stages to curtail unnecessary future management procedures coupled with assisting in management, maintenance and repairing functions; after leasing, to carryout routine inspection of the property to ensure its long life together with maximization of returns forthwith.

An Estate Surveyor cannot take the risk of managing a building which its income is less than its cost of maintenance. Generally speaking, the period of economic variations is very risk to real estate development and management. An effective method for risk reduction is for the developer to avail himself of the services of the Estate Surveyor and Valuer. The decision to develop should be based on the discovery of an investment opportunity which is confirmed as feasible and viable by a professionally executed study.

Subsequently, the construction phase should be managed to ensure that the project is built to specification, within budget and on schedule. This important role of the Estate Surveyor shall save the nation from the cases of current reoccurring building failures. If the property is to be sold, the objective of the sales agent will also be derived from the feasibility report in order to achieve targeted sales prices for projected number of units, and on schedule. Also, if the project is to be let at the letting stage and if the market study has been properly done, the projected occupancy levels must be realized at anticipated rentals on projected lease terms.

At the management stage, the objective of management will also be derived from the feasibility report. This will help to provide the level of property services within budgeted operating cost, keep tenants, realize expected net income, meet debt service obligations and pay equity interests.

It is most unfortunate that the crucial need for the professional Estate Surveyor to maintain properties of various kinds has not been fully appreciated by most people. It is generally observed that our development projects, particularly, government ones, cost much more than they are worth and I believe that one of the reasons for this is the absence of relevant professional advice on the relationship of the cost of these projects to their values. This is the kind of advice which the Estate Surveyors and Valuers are best place to give. Government at times, put up residential properties that eventually cost at least double the capital that would have been utilized if appropriate advice had been got from qualified Estate Surveyors. To make it worse, when these buildings are finally put up, they are left to deteriorate due to lack of adequate management, maintenance and repair services. Such properties rapidly attain a high level of obsolescence.

By the nature of his profession, an Estate Surveyor and Valuer is closer to developers/investors and financial institutions than any other professional and he should, therefore, use this advantage to the interest of the society.

The expertise knowledge in the management of real properties possessed by the qualified Estate Surveyors and Valuers at this time of economic variation enable them to achieve a high level of management and maintenance quality in properties under their care, thereby achieving least costs and maximum returns. If they are sought for advice as to how to construct buildings with minimum costs using adequate building and construction materials, the burden of putting up new buildings will be lesser while people also enjoy good structural and sanitary environment.

During times of economic changes, a real estate manager operates in a risky business environment. This environment is risky precisely because of the greater market and economic uncertainty which characterizes it, the higher cost of developing and operating developed building and the greater requirement for professional management of the development process. In order to reduce development and management risks in variable economic conditions, the only viable option open to the prudent real estate developer/owner is to entrust his affairs at inception stage to the Estate Surveyors and Valuer. This is so because the most potent instrument for risk reduction is the carefully executed feasibility and viability report, comprising the market and economic study of the project idea and an analysis of its investment potential.

In addition, the feasibility and viability report incorporating the Quantity Surveyor‟s cost estimates, is the only authentic working document which serves as reference material for all participants in the development process: the architect, the building contractor, the letting agent, the property manager, the quantity surveyor, the lender, the equity investors and the developer.

This research work has dealt with the physical, institutional and economic frameworks within real estate development in the study area takes place. This would help both the real estate developer and manager to know the features of the environment where they are operating.

Property managers who can analyse the real estate market and recognize trends will be prepared for economic fluctuations and crises. By anticipating changes in the market and adjusting rentals and other factors within their control, property managers can minimize the effect of contraction in the real estate cycle and keep their vacancy rates as low as possible. They should use their knowledge and judgement concerning market conditions when setting rental structures, allocating money for operating costs, renovating properties and making other financial plans. General knowledge of the market should be integrated with information about the market in the area where the Estate surveyor is operating.

Having identified the economic constraints of the country and some recommendations made accordingly, the researcher believes that their implementation will ensure a brighter real property market for Estate Surveyors and Valuers.


A Critical Analysis Of The Effects Of Economic Variations On Real Property Management


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