• Platform to usher in monthly rent payment
Operatives in the real estate sector are agitated over the renewed effort by Lagos authorities to pursue its monthly rental scheme, following a proposal to build a N300 million digital rent payment platform.
Experts expressed concerns that the proposed introduction of charges to onboard property owners and renters could further hike the cost of rent in a city battling with a shortage of about three million homes, as well as discourage real estate investments.
With a Nigerian property market challenged by an undersupply of housing stocks estimated at 20 to 28 million affordable deficit, many have described the initiative as a political move, warning that it will worsen housing affordability. Currently, the available stocks are beyond the reach of low and middle-income residents.
House rents and sale of newly built structures have recently spiked and have gone beyond the affordability reach of most residents. For instance, a two-bedroom apartment fully furnished now goes for about N45m in a major location, while a one-bedroom is sold at N20 to N25m.
The cost of rent is also high with a self-contained apartment given out at N700,000, two-bedroom rent costs about N2 million and three-bedroom, N2.5 or N3 million and above in specific locations. A recent report also affirmed that rents in Lagos state have surged by over 100 per cent in the past four years.
Currently, there are worries about the poor mortgage system, loss of jobs among estate agents, real estate financing and interest rates, as well as the applicability of the scheme to commercial properties.
The renewed attempt to formulate and implement rent control laws in the state has pitted many landlords against their tenants.
The World Economic Forum (WEF) revealed that the commercial nerve centre of Nigeria is one of the fastest growing cities in the world with at least a growth rate of 85 new persons coming into the city per hour without any plan of ever going back. The development has worsened homelessness among citizens with many living under bridges and unhygienic locations across the cities.
Under the proposed scheme, the state government had said it set aside N5 billion for the programme. Although some residents had described it as a people-friendly policy, it, however, generated controversies among landlords and potential investors in the housing market.
Special Adviser to Lagos State Governor on Housing, Barakat Odunuga-Bakare, who is driving the monthly rent payment scheme, said: “We know what is being done in other climes; rents are collected monthly. Hence, we are looking and hoping that before the end of the year, or by early next year, we will be able to implement the policy of monthly rental.
“The rental would be charged according to tenants’ earnings. The good part about it is that we would be test-running it first within the public sector since we can ascertain how much everybody is earning, and once it works in the public sector, we can push it out to the private sector.”
The move by the state government to build a digital rental platform is seen as part of the drive for monthly rent payments. In a document titled EKO Revenue Plus Summit, themed: “Unlocking New Revenue Streams for Lagos State,” the state planned to raise N2.5 billion from an estimated 100,000 subscriptions yearly.
The Eko Revenue Plus Summit is a public-private partnership initiative set to develop and enhance revenue sources of government, as well as drive sustainable economic growth for residents. It targets to push the states’ yearly internally generated revenue to N5 trillion by 2027.
Lagos currently boasts of a population of 21 million and is challenged by a huge housing deficit. Reports estimated that the residential sector is valued at N173 trillion, while the commercial real estate is at N10 trillion.
According to a report, the digital platform will be co-owned by the Lagos state government through agencies such as the Lagos State Ministry of Housing and other Ministries, Departments and Agencies (MDAs) in the state as technical partners. The government said it would invest around N300 million in building the digital platform.
It states: “Lagos Rent Payment Platform- A digitised monthly payment platform co-owned by the state government to activate payment of monthly rents. Income is from transaction fees of an estimated 100,000 transactions monthly at 5 per cent transaction fees are estimated at N2.5b yearly.”
The platform it was learnt will be called the Lagos BuildIT platform and will be co-owned by the government and help prospective homeowners, as well as generate revenue for the state.
That the state government also plans to invest about N5 trillion in the real estate industry through partnerships with about 19 investors, including Access Links Property, C2Q Property & Investment Company Ltd, Brains & Hammers, D37 Capital Limited, Trust Arthur, ARM Investment Managers, FSDH Merchant Bank, and WEMA Bank.
Also, landlords and housing developers will benefit from an initiative to build a platform that “aggregates and connects accredited professionals and suppliers in the real estate sector, to prospective homeowners and saves them from long-standing delivery problems.
Amid the harsh economic reality, stakeholders insisted that it would be difficult to control rent, as it is determined through demand and supply, and other parameters. According to them, many developers build their houses with bank loans and hope to recoup their investments.
A past chairman, the Nigerian Institution of Estate Surveyors and Valuers, Lagos State branch, Mr Adedotun Bamigbola, said the government’s move is an idea that needs to be thought through because of industrial practices.
He said: “We must understand why Lagos and Nigerian investors switched from monthly rental and tenancy in the 1970s and 1980s, to full yearly rental and tenancy in the late 1990s and 2000s. I think a thorough study of the factors that led to this switch should be made and put out there first. Have those factors changed to bring out this quest for this monthly rental payment and tenancy?
“It should not be treated as a political move because the economic system will find a way around it. Is the mortgage system now better? Are real estate financing and interest rates more favourable? Will this apply to commercial properties later? What will be the impact on businesses that build goodwill in property and invest hugely to set up an office paying monthly rent, if economic realities change rental or require a sale of the property after three months’ rent payment? What laws and systems will be put in place for the recovery of property from debtors or uncooperative tenants?
He said that to the government, housing may be a social welfare issue, but to the private real estate owner, it is an investment. Bamigbola pointed out that the perception of the majority of Nigerians still relies more on physical interactions for businesses.
“If it is an online system, the capacity to run it will be based on the Information Communication Technology (ICT) system backing it up. The challenge of control of the market is another thing because I don’t think a law exists or can exist to compel every investor to trade only with the government, in a capitalist democracy. I don’t know the workings of the platform and the project. I don’t know who will pay the five per cent fee,” he added.
According to him, real estate globally has been in the purview of the private sector practitioners and investors, stressing that even with regulations, the government brings in professional practitioners to establish the system or allow a self-regulatory system.
He observed that the government’s involvement should be providing enabling laws for the business environment. To him, anything beyond that can be considered overbearing.
Professor of Estate Management at the University of Lagos (UNILAG), Austin Otegbulu, observed that the digital rental platform unveiled by the government is not explicitly clear it appears that the major essence is revenue generation.
“I am yet to understand its value to the prospective participants. My understanding is that the purpose of the platform is to collect rent from occupants of Lagos State government homes. The participants will also pay a five per cent service charge to the agency, which will add extra burden on the concerned tenants.
“I doubt if it will sideline estate agents or agency surveyors in any way because their contracts are with the property owners. I am not sure that it’s proper for the government to compete with private estate agents who also pay tax to the state government,” he said.
He expressed doubt that the intention is to take over the business from private estate consultants, saying that “it will be a monopoly and an infringement on the contract between the tenants/landlords and the consultants if the intention of the government is otherwise.”
Otegbulu, who doubles as the Chairman Board of Trustees, Nigerian Institution of Estate Surveyors and Valuers (NIESV), expressed confidence that activities through the platform will be limited to occupiers of government properties.
“Based on various reports on the matter, it’s the tenants that will pay the fee. This constitutes an extra burden on the tenants. I wouldn’t want to use the word overbearing on the government. They should, however, be more creative in trying to expand their revenue base. We will, however, wait for details of the policy.
“The government cannot force the landlords to enter into management contracts with them. They will not want to drive professionals out of business. The scenario will become clearer as they unveil details of the policy,” he said.
A financial management expert/founder of media firm, Nairametrics, Mr Ugodre Obi-Chukwu, said: “A lot of dynamics comes into play when it comes to monthly rent, which may be out of the government’s control. In most countries where people pay rent monthly; when you move in, you do so with limited property because the landlord has already provided most of what you need which makes it easier to move.
“But in Nigeria, when a tenant moves into a house he improves the house with their money, paints the house, fixes plumbing issues and may end up fixing power. These are capital improvements in a house that is not yours. To lock in the cost and recover capital, the tenant wouldn’t want to pay monthly but prefer one or two years.
He raised concerns that should there be another source of disputes, how quickly the legal system can resolve them when they arise. The authorities, he said, may also need a lot of insurance products to ease landlords’ costs when their vacancy rates are high to meet their mortgage repayment.
According to him, the idea is nascent, adding: “Maybe we are in a hurry because the market hasn’t developed that much. One year’s rent is fair enough and most landlords are happy to collect yearly rent at the moment.”
He observed that other players in the market like estate agents who are ready to collect rent commission are also there, warning that commission for one month won’t work for them, with the sort of work they put in, to get people into homes.
“The longer the years for rent payment, the higher the commissions for estate agents. If it is two months’ rent a tenant is paying, they get more commission. That is how they too can pay their bills. A lot of tenants won’t want monthly rent as a recent survey has pointed out. The stress of having to start looking for a new home alone will discourage people’s interest in monthly rent but they want to be sure that at least one or two years after, they can start looking for new accommodation,” he added.
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