AN APPRAISAL OF TREND IN RENTAL VALUE OF RESIDENTIAL PROPERTY WITHIN THE LAST TEN YEARS

Abstract T

he paper assesses the extent of public housing affordability in Kano metropolis. Using survey research design approach, four Housing Estates with a population of 1,635 dwelling units were purposively chosen namely; Danladi Nasidi, Zawaciki, Jido and Wailari. A sample size of 314 households was selected using population proportionate sample size (PPS) while the respondents were selected by simple random sampling technique (SRS). The data was collected using structured interviews and questionnaire survey; where 314 copies of the questionnaires were distributed and 312 retrieved representing 99.4%. The data from the questionnaire was analyzed using Logistic regression analysis to measure the relationship between the major predictors of housing affordability that include income, housing expenditure and housing type. The result shows that the full model containing all predictors was statistically significant, X2 (3, N= 300) = 200,007. The most important predictor among the independent variables was monthly income with odd ratio of 8.618, followed by the housing type which has an odd ratio of 6.196 while monthly expenditure has the least odd ratio of 2.807. This indicates a serious housing affordability problem among the households in the study area. The paper found out that a majority of the respondents was living on rent in the public sector housing estates as a result of housing affordability problems. Data analysis further shows that housing prices are at variance with income of many households in the estates which makes housing affordability a major concern. Based on that, therefore the paper recommends policy review to consider the amount requested for each of the housing units from households willing to purchase the houses. Government should introduce Housing Mortgage system, spreads the payment period and reduces the interest rates to encourage households to own the housing units. Furthermore, the use of local building materials should be encouraged especially by government contractors because they are relatively cheaper and this will reduce the production cost of public housing units thereby increasing the level of affordability among the different socio-economic groups in the society

COMMERCIAL REAL ESTATE RISK IN NIGERIA: ISSUES FOR INVESTORS

CHAPTER ONE/INTRODUCTION

Real estate is defined as land, including the air above it and the ground below it, and any buildings or structures on it. It covers residential housing, commercial offices, trading spaces such as theatres, hotels and restaurants, retail outlets, industrial buildings such as factories and government buildings. Real estate involves the purchase, sale, and development of land, residential and non-residential buildings. Due to its unique nature, heavy capital involvement and complexity, its development entails a lot of uncertainties and risks. Entrepreneurs in this sector are expected to make sound decisions in the management of these risks in order to achieve their entrepreneurial objective on property performance.

Real estate sector is globally regarded as an integral partof a country’s economy. It is responsible for a considerable part of its development investment with sizeable amount of economic growth through backward and forward linkages to a considerable number of ancillary industries and sectors. Its contribution to GDP in 2010 was 28% (US) and 28% in United Kingdom (Kongela, 2013) .The Indian real estate sector is one of the most globally recognized sectors. It is slated to grow at 30 per cent over the next decade. The construction industry ranks third among the 14 major sectors in terms of direct, indirect and induced effects in all sectors of the economy (Kimani and Memba, 2017). The GDP share of real estate in India was 6.3 per cent in 2013 and expected to generate 7.6 million jobs a year. In China, the GDP share of real estate grew from 5 per cent in 2000 to 15 per cent in 2012, with 14 per cent of urban employment coming from real estate and related sectors (Mutreja, Chua and Guha, 2015). Similar performance were realized by African states were real estate contribution to GDP was6.82% (Nigeria in 2014), 10.2% (Tanzania in 2012) while in Nigeria it registered 4.8% of GDP in the year 2013 (Kongela, 2013; Nigeria National Bureau of Statistics (KNBS), 2015. Although, this sector plays a pivatol role in economic development, the performance of real estate properties has perinnially been eclipsed by several challenges including the management of its risks borne throughtout their development life cycle. The resultant is a threat to its expected or intended performance (Wiegelmann (2012).

Risk, irrespective of its type, should be managed to achieve the desired outcome (Ghahramanzadeh, 2013). Given that projects undertaken in real estate sector are widely complex and often have significant budgets, reducing associated risks should be a priority for each project developer (Gajewska & Ropel, 2011). Risk management is a process designed to remove or reduce the negative effect of the risks that threatened the achievement of project objectives (Project Management Institute (2013).Although many investors enter real estate market because of its high growth potential and high profitability, achievability of properties’ long term and short term profitability objectives depends on how well the risks are managed (Koirala, 2012).Sibomana (2015) postulates that the cause of property failure can be directly related to the extent of risk management undertaken during the property’s development lifecycle. Ghahramanzadeh (2013) found that reactive risk management is practiced more than proactive risk management, resulting to dismal results. Poor performance is not only as a result of lack of knowledge in systematic approach to risk management by the developers, but the situation is worsened due to information asymmetry about risks in real estate in what are the different types of risks that affect their performances, and which ones can be considered to be major in terms of their criticality. Such information is important for effective decision making process when managing risk. Citroen (2011) states that the wrong decision made on the choice of strategy due to lack of information, often times will lead to failure of the project or subject the real estate developer to heavy consequences.

A study on Malaysian construction industry revealed that 92% of construction projects could not be completed within the contract period, while 89% were facing the propblem of cost and time overunn in the range of 5-10% of contract. In their study on the factors affecting effective risk management in public housing construction projects in Rwanda, Maina et al. (2016) postulates that although there is a well- developed, designed and implemented processes of project risk management such as risk management planning, risk identification, risk assessment, risk analysis and risk response planning, 51% of construction project experience failure attributed to occurrence of risks. In this regard, they advocate for effective risk management approach that helps to convert uncertainty to risk and convert risk to opportunity. Similar findings were arrived at by Ghahramanzadeh (2013) in his study on Iranian real estate industry where reactive risk management is practiced more than proactive risk management, resulting to dismal results.

Property failure in Nigeria is not different. In an audit report coveing two and a half years of sampled counties by the National Buildings Inspectorate (NBI) revealing some worring findings; out of 4,879 buildings that were inspected during that period, 650 were categorised as very dangerous, 826 as unsafe, 1,185 fair while only 2,170 representing about 44% were found to be safe for occupation (National Building Inspectorate, 2017). According to Githenya and Ngugi (2014) argue that construction projects do not always meet key performance goals such as scheduled time, cost, quality or return on investment and hence beg for answers to explain this phenomenon. Kariungi (2014) on the other hand postulates that although risks are managed every day in the Nigerian real estate industry, they are not managed in a structured way and knowledge of risk management was close to zero. . A case at hand is the Nigeria Power and Lighting Company project in Thika, where major risk management flows were found to have contributed to the project’s completion failure (Kariungi, 2014). Similarly, minimal application of risk management practices  was associated to poor performance of Constituency Development Fund (CDF) projects in Juja (Mwangi & Kwasira, 2016).

 Statement of the problem

Commercial real estate properties play a critical role in economic growth of any nation (Mouzughi, Bryde, and Al-Shaer, 2014). In view of this, the Nigeria government together with its development partners as well as private developers continue to allocate huge financial resources to finance real estate development in a bid to earn from its investment. Real estate properties are considered to be successful when they meet the client’s satisfaction in terms of project cost, scheduled time, economic and structural functionality, market demands, and return on investments (Hove and Banjo, 2015)

Despite the Nigerian Government and other state corporations considering the real estate as a significant contributor of economic development more than 70% of construction projects in Nigeria experience time overrun of a magnitude of over 50%, while 50% of the projects experience excess cost budget of a magnitude of more than 20% (Auma, 2014; Gwaya, Masu & Wanyona, 2014). In the year 2015, office space absorption levels dipped, rental levels for retail outlets stagnated while the residential accommodation uptake was low (Knight Frank, 2015). On collapsing of buildings, the cases has reached an ‘alarming stage’ in the past few years with several buildings structurally failing (Kioko, 2014).Between 2009 and 2014 seventeen buildings spontaneously collapsed, killing and injuring many people. (Fernandez, 2014).In total 87 cases of buildings that have collapsed and death toll of 170 people has been recorded to date (Kabala, 2019). Financial performance is similarly blink with defaults on mortgage standing at 38 billion shillings by December 2018 (Central Bank of Nigeria, 2018).

This documented poor performance may be attributed to lack of adequate insight on key risk factors, their criticality and failure to manage property risks in a systematic way. For the performance of commercial real estate properties to be realized insight on key risk factors, their effects on performance and how they are dealt with is necessary to the developers. Such information is lacking in literature and amongst real estate entrepreneurs in Nigeria. This study envisages filling this gap by investigating risk management of selected risk categories and its effect on performance of commercial real estate properties in Nigeria.

Purpose of the study

The purpose of this study is to examine risk management of selected risk categories and its effect on performance of commercial real estate properties in Nigeria.

Objectives of the study

The following are the specific objectives of the study

1. To determine the effect of technical risk management on performance of commercial real estate properties
2. To investigate the effect of financial/economic risk management on performance of commercial real estate properties
3. To evaluate the effect of market risk management on performance of commercial real estate properties

PROBLEM OF COMMERCIAL PROPERTY MANAGEMENT IN LAGOS STATE

CHAPTER ONE

INTRODUCTION

BACKGROUND OF THE STUDY

Property management is an act of intermediation between owners and occupies on issues affecting the parties arising from ownership and occupation of buildings. It is a conscious process of guiding and tailoring an investment in land into profitable venture. Its main concern is the optimization of the owners investment (Scarrett, 1995). The practice is however prone to a lot of problems which are capable of preventing or at best reducing the chances of realizing anticipated investment objective. In other words, the achievement or success of the art of nursing and directing an investment in landed property with a view to obtaining maximum return is a function of how well a property manager is able to effectively prevent and/or overcome seeming obstacles in the course of the discharge of its duties. As different from commodity, the deliverable in property management is service. The property manager advises the client concerning the general client policy regarding cooperation and compensation and as to the best and appropriate choice of tenants for the building. He takes decision on the best term of lease arrangement and appropriate terms of renewal. In addition to being aware of pending or enacted changes in the zoning ordinance that might affect the market value or use of property being managed, he should be informed as rapidly and thoroughly as feasible about laws, proposed legislation, government regulations, public policies and current market conditions.

Property managers seem to be of more relevant in the current economic dispensation. The global collapse of the capital market with its attendants effects, which has not spared African countries like Nigeria, are seen to be compelling investors to redirect their investment ventures into real estate, especially with visible foreign and local investments in commercial properties. These are properties acquired for the purposes of yielding regular inflow of income to investors. Commercial properties are often relatively large and complex buildings some of which are multi-storeyed or high rise type. The complexity involved in terms of the bigness of the structure and diverse and multiple occupants informed the need for specialized skill and training for efficient and effective service delivery.

The many and varied duties of a property manager require the skills of a business executive, decorator, salesperson, parking lot attendant, gardener, housekeeper, information center, accountant, banker, doctor, lawyer, social director, psychologist, marriage counselor, baby sitter, bookkeeper, rent collector, maintenance expert, security officer, keeper of the keys, telephone operator, messenger service, and complaint department. The manager must also be softspoken, fast-moving, poised, quick-thinking, non-tiring, ever-available, mechanicalminded, all-knowing and never-ailing. This “expert” knows how to visit without visiting, sell without selling, see without judging, hear without repeating – and all without having time for an uninterrupted meal. The property manager has a dual responsibility: to the owner or client who is interested in the highest return from the property; and to the tenants, who are interested in the best value for their money, including reasonable safety measures and compliance with fair housing laws.

Property management, according to Scarett (1995) must be based on the terms of the contractual agreement between the parties on the one hand, on an appreciation and interpretation of the particular owners objective on the other hand. This thus requires a high degree of compliance with the provisions and terms as well as performance on the part of the parties. The in-ability of any of the parties to perform fully or in part his/her own part of the agreement brings about management problems. Management problems hinders effective operations of property management activities. Depending on the magnitude of the problems, ineffective service delivery could bring about client dissatisfaction as well as prevent the achievement of the owners’ investment objective(s). The ‘expert’ property manager could therefore be seen to be negligent and/or incompetent if unable to achieve the objectives of income generation which is the main goal of an investment in commercial property.