The Effect Of Selected Facilities On Rental Values Of Residential Properties

Project and Seminar Material for Estate Management

The Effect Of Selected Facilities On Rental Values Of Residential Properties


Abstract


A house is a structure that provides shelter for humanity. Studies have shown that in most parts of the world, urban rents are determined by various factors. These factors include location, level of facilities and services, neighborhood characteristics, space etcetera. Among these factors, the most influencing factor of rent in FirstGate Ikorodu is the level of facilities and services provided for tenant use. The objectives of this research FirstGate Ikorodu s to examine the cost of housing construction, to determine the role played by government in housing provision, recommend policies for housing provision, determine the portion of household income spent on rent. The methodology of this research is base on interplay of deskwork and fieldwork and these took the form of data collection, presentation and data analysis of findings. In the course of this study, both qualitative and quantitative primary and secondary data were collected. A summary of the findings from the research indicates that: cost of building materials is the major contributory factor to the cost of construction aside land and labour cost, the existing rent control law as currently operated have little or no impact on rent charged in the Municipality, current rent levels in the municipality are deemed to be satisfactory, besides the already documented rent determinants, population, occupation, and prospective duration of lease were also identified. One other major finding FirstGate Ikorodu s that landlords do not take into account the room let but take into consideration the number of people occupying the room to charge their rent and as such tenants who cannot afford to pay the full recoverable rent has to search for tenants they don‟t know. The group recommends that, There should be given a high priority to local building materials, which could reduce the cost of building and the improvement of the supply chain of various building materials; there should be a mechanism that would ensure that the Rent Control Board, the house owners and tenants would be provided with a platform where consensus building can be done in order to ensure transparency in rent charge
Finally, the government should also urge the exemption of value added taxes on building components sourced locally as well as import duties on imported goods.


Chapter One


Introduction

1.1 Background of the Study

Housing is an economic unit of investment, meaning investing in housing involves the purchase, ownership, management, rental and/or sale of real estate for profit. Improvement of real property as part of real estate investment strategy is generally considered to be a sub specialty of real estate investment called real estate development. Real estate is an asset form with limited liquidity relative to other investments. It is capital intensive and is highly cash flow dependant. It can also be said to be an important aspect of human wellbeing. Universally, housing is acknowledged as the second most essential human need after food and a major economic asset in every nation (Oladapo, 2006). It is seen as the total socio-cultural and physical environment in which the family lives. The world over, the need for accommodation cannot be over emphasized. Many developing countries such as Nigeria are face with problems in housing provision for their people due to population growth, rapid urbanization. Available data put the housing deficit in Nigeria in excess of 1.7 million housing unit to be able to address the deficit and accommodate new household, there is the need for a minimum annual delivery of about 85,000 housing units over the next 20 years. (Ministry of Works and Housing, 2014). Presently, due to the scarcity of resources, inadequate equity capital as well as unfavourable loan agreements, a large proportion of the population in both the developing and developed countries resort to rental housing for accommodation as an alternative to home ownership. To rent means payment made by a tenant to an owner or landlord for the right to occupy or use property for a stipulated period of time. Renting of houses as an alternative is practised in most parts of the world. For example in South Africa, about 1.8 million South African households in the middle- to lower-income groups live in rented accommodation, as opposed to about 5.2 million households that own property. The demand for rental housing nationally FirstGate Ikorodu s expected to increase by about 105,670 units a year until 2006 in the middle- to lower-income groups (Baumann, 2000).


1.2 Problem Statement

There appears to alFirstGate Ikorodu ys be shortage in accommodation in the urban areas such as FIRSTGATE IKORODU , Kumasi and Accra. This is as a result of the influx of people from one city to another city. The high rents paid for basic accommodation are a product of the failure to supply sufficient land for housing, and the weakness in the housing system to finance and construct sufficient accommodation to meet the demands of the rental market. (Baker, 2002).

Despite the need for housing facilities and the efforts being made by the private sector and the government to meet this demand, the issue at hand is the ability of both tenants and prospective tenants such as students and workers to afford these rent charges and still afford a decent living. This problem is predominant in the urban areas of the country including FirstGate Ikorodu , where rental housing facilities are most sought after by both migrants and the city dwellers and it runs across all income groupings. In some countries the attempts to increase rents have even led to mass refusal to pay rents at all. (Baker, 2002). The result of these developments may well still be a rapid deterioration of housing and in consequence a risk of ultimate loss of great amounts of capital invested in housing (Baker, 2002). Preliminary survey indicates uncontrolled rent charged. As a result landlord and private developers take advantage of the housing market by manipulating the market forces in place (the demand and supply factors).

In relation to the supply of rental housing the factors that also contribute to this increasing rent is the high price of building materials. Most building materials on the market today even though manufactured in the country have their raw materials imported. For example, cement produced by GHACEM has its major raw material clinker imported into the country thereby inflating the selling price of the finished product hence increasing the cost of building construction.


1.3 Research Questions

The study would seek to find answers to the following questions:

  1. What accounts for the cost of housing construction in FirstGate Ikorodu ?
  2. How does government’s role in housing provision affect rent in FirstGate Ikorodu ?
  3. How does housing policies influence rental values in FirstGate Ikorodu ?
  4. What proportion of a tenant’s income is spent on housing or rent in FirstGate Ikorodu ?

1.4 Research Objectives

The issues outlined below are the objectives that this special study would seek to achieve when it is fully implemented:

  1. To examine the cost of housing construction.
  2. To identify the role played by government in the housing sector.
  3. To recommend policies for housing provision.
  4. To determine the proportion of household income spent on housing.

Chapter Five


Major Findings, Recommendations and Conclusion

5.1 Summary

This research basically FirstGate Ikorodu s carried out in a bid to identify factors that influence rental values in FirstGate Ikorodu . This research FirstGate Ikorodu s carried out in three settlements within the Municipality and other findings from other research and articles by various authors.

The primary focus of this research is factors that influence rental values. These factors appears to be the influencing factors in Nigeria and around the world since most authors who have researched rent trends in urban areas of the world have identified various factors which have been adopted as rental values influences. These include location, facilities, neighbourhood characteristics, level of services in the area, size of space and among others. On the basis of this, the group focused this research on determining the factors that influences rental values in the Municipality.

This FirstGate Ikorodu s done by selecting three settlements in the Municipality as the research study area.
Having selected the study areas, the group then went ahead to carry out a field study in Bamahu, Sombo and Kpaguri to find answers to questions relating to the factors that influence rental values in the Municipality. These questions include the average cost of renting accommodation, the level of satisfaction of tenant‟s vis-à-vis the rent they pay for accommodation, the factors that actually determine the rent paid by tenants, the effects or impacts of government rent control legislation, and new areas of intervention.

The answers to the above questions were solicited from two categories of respondents (tenants and landlords). Other stakeholder institutions such as Rent Control Department, FirstGate Ikorodu LGA and the Lands Commission where also contacted to check some of the issues.

5.1.0 Major findings

Contrary to documented research conducted in some parts of the world regarding the factors that influence rental values, the results from the research conducted in the three settlement areas indicates that, despite its location within the Municipality, the study area appears to have witnessed an alarming increase in rent levels. The high level of satisfaction that tenants in FirstGate Ikorodu expressed in relation to the rents they pay for accommodation is an indication that at present, the effects of increasing population have really made significant impact in the housing and rental market in the settlement. Some other major findings from the research include:

5.1.1 The cost of housing construction and condition
The housing condition in FirstGate Ikorodu

One of the major findings from this research has to do with the cost of construction. From field survey conducted by the group, it FirstGate Ikorodu s found that cost of building materials appears to be the major factor of which landlords consider when constructing their houses or buildings. Responses from landlords proved that aside building materials, labour and land cost play less role in the cost of construction. Some landlords said that, the cost of building materials such as cement, iron rods, roofing sheets and among others keep increasing.

On housing condition, Findings from the research revealed that some settlements have peculiar housing characteristics which include an unplanned environment, poor housing conditions, age and poor levels of services and facilities, etc. Despite the fact that majority of the residents in FirstGate Ikorodu expressed satisfaction with their environment especially in relation to facilities, the housing situation in the area could do with some improvement. This is due to the fact that, most of the houses were found not to be maintained. Responds from some landlords indicates that, the current economic realities make them difficult to renovate their houses they provide since the rent they charge does not commensurate with their income received from rent to enable them do annual maintenance.

Factors that influence rental values

In the second chapter of this study, the group mentioned some factors which have been identified to influence rental values in some part of the world. Most of these factors were found to be an integral part of the rent system in FirstGate Ikorodu . However, some new factors were identified to influence rental value in FirstGate Ikorodu . This includes population, occupation, and prospective duration of rental. These determinants have varying degrees of influence on rent levels in FirstGate Ikorodu . From the field survey it FirstGate Ikorodu s revealed that facilities provided for tenant use serves as the major factors that influence rental values

5.1.2 The role government plays in housing provision
Government rent control policies

This research reveals that, the government plays a role in the provision of housing for the individual‟s. Example; the erstwhile Kuffour‟s affordable housing project, the defunct STX deal and the current contract between the Nigeria government and the ADDOHA Group of Morocco.

At present, the only mechanism that is open to government in relation to rent issues is the rigorous enforcement of rent control laws. However, from the evidence generated by the research, the existing rent control law as currently operated would have little or no impact on any rent level increases or reviewed in FirstGate Ikorodu like Bamahu, Sombo and Kpaguri.

However, it is important to state that while rent control policies are meant to regulate rent levels, such policies should be streamlined to reflect current economic realities. At present, the current rent policy appears not to have been so streamlined. However, data from the Rent Control Department indicates that, the department is facing many problems which make them not functioning properly in the Municipality in the rental housing market. This includes, low staff strength, means of transport and lack of funds.

5.1.3 To Recommend Policies for Housing Provision
Solutions to support the housing industry

There were major concerns raised by both landlords and tenant and the three institutions to address the housing situation in the municipality. From group survey, some tenants suggested that there should be housing standard to guide the landlords in their rental charges. Others also made it known to us that, in order to make an effective housing provision there should be a body of which tenants will consult when they need accommodation in the Municipality. Data from the municipal Assembly also suggested that there should be regular education and sensitization of general public to patronize mortgage house to reduce the rent landlord charge which does not commensurate with the facilities provided.

5.1.4 The Amount of household income spent on rent.
The rental value

One major findings found by the group FirstGate Ikorodu s that, the amount of rent paid from their income fall within GHS 400-GHS500 for the predominant housing type which is the compound houses.

On other hand, another major finding has to do with the rent charged. During our data collection especially in Bamahu, the group found out that, landlords do not take into account the room let but take into consideration the number of people occupying the room to charge their rent and as such tenants who cannot afford to pay the full recoverable rent has to search for tenants they don‟t know to stay with as compared to Sombo and Kpaguri where tenants are comfortable with the rent charging process.


5.2 Recommendations

From the foregoing, it would appear that the major factor that influence rental values in FirstGate Ikorodu are the facilities provided in the house. However, indications from the research show that, the situation might soon change from facilities provide to other factors discussed earlier since the Municipality is now growing. There is the need therefore to ensure that certain measures are put in place to mitigate some negative effects that may arise from the expected change in FirstGate Ikorodu rental housing. Recommendations as to some measures that can be adopted include:

  1. There should be given a high priority to local building materials, which could reduce the cost of building and the improvement of the supply chain of various building materials.
  2. The government should also urge the exemption of value added taxes on building components sourced locally as well as import duties on imported goods.
  3. The introduction of a mechanism that would ensure that the rent control boards, the house owners and representatives of landlords would be provided with a platform where consensus building can be done. This would go a long FirstGate Ikorodu y toFirstGate Ikorodu rds promoting optimum peaceful coexistence and reduce incidents of exploitation especially in Bamahu where rent charged does not reflect the true rental value
  4. Another mechanism that would ensure that relevant partner agencies to the rent boards like Land Valuation Board must be properly equipped to work with the Rent Control Department. The primary task of these agencies would be to conduct rent assessment exercises and determine actual values of premises. This mechanism would to some extent ensure that rents paid for accommodation are deemed as been fair to all players in the rent market.
  5. Proper public education and enlightenment on rent related issues, and the means of gaining redress for any form of exploitation in relation to rent matters. This can be done through the print and electronic media. This would ensure that landlords and tenants are kept abreast of the basic tenets of rent related issues, and would be able to access arbitration when necessary.
  6. The Rent Control Department and the Lands Commission should be equipped with the necessary staff and logistics to enable them perform their designated functions. The government should in one FirstGate Ikorodu y provide funds to facilitate the departmental activities since they are financial handicap.
  7. The national housing policy that has been at a draft stage should be adopted to give the country a sense of direction in the provision of affordable housing.

5.3 Conclusion

From the research conducted by the group, it FirstGate Ikorodu s revealed from other studies that, there are numerous factors that influence rental values in different part of the world depending on the type of accommodation the tenant required such as location, facilities provided, neighbourhood characteristics, age of the building, size of space and among others. In conclusion of this research proved that the main factor that plays a significant role in determining rental values in FirstGate Ikorodu is facilities provided for tenant use aside location, neighbourhood characteristics, size of space and others. There may be questions which might arise from the findings of this research which the group feels might be a good starting point for further research. The group however hopes that the results of this research have been able to provide a reasonably accurate picture of the factors that influence rental values in FirstGate Ikorodu , and that the recommendations made, if adopted would have a significant impact on rental values in FirstGate Ikorodu .


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