A replica of the London rent-to-rent model in Nigeria holds significant opportunities for local real estate investors and could bring relief for the housing industry which has a deficit of more than 20 million units.
The rapidly growing world of ‘rent-to-rent’, also known as ‘rent the rented’ and ‘multi-let’ kicked off about six years ago in London, the city with one of the most industrialized real estate sectors in the world. The model requires an investor to rent a house, then sublet the rooms to as many people as possible for a monthly or weekly payments.
Damilare Ogundayo, a 29 years old Nigerian who is based in Eastern part of London told BusinessDay he’s raking in £32,000 (N14.8 million) a month in rent – without ever having to buy a property.
“I have let out 202 rooms in 30 properties across London; I turned a fat profit by renting a three-bed house from a landlord, converted the lounge and dining room into bedrooms,” Ogundayo told BusinessDay in London while giving the assurance that he got the permission of the landlord to carry out the sublet.
The model could provide a solution to the housing crisis in Africa’s most populous nation which has one of the world’s lowest home-ownership rates and could also tackle rigid rent payment systems in the country.
To rent an apartment in Nigeria, one would have to make a down payment of not less than one year, in other cases; some tenants are expected to pay up to 3 years upfront rent.
This is however not the case in some African countries like Botswana, South Africa, Benin Republic, Togo and Rwanda, where rent payment frequency is paid on monthly basis without also an upfront or down payment, data from a survey by Lagos-based Estate Intel analysed by BusinessDay shows.
According to Adeniyi Akinlusi, president of Mortgage Bankers Association of Nigeria (MBAN) and CEO, Trustbond Mortgage, landlords in some cities in Nigeria collect upfront payment of 2 years because of the high-interest rate on the loans they borrowed from banks and as such are constantly in search for ways to recoup and pay up as soon as possible.
“The second reason maybe because they are not sure that the tenants will be consistent in their monthly payment.” He added saying the “fear of high default rate due to the lack of credit collection system,” is a challenge.
The high demand for affordable apartments is one of the factors also cited by industry experts as the reason why landlords require tenants to pay different illegal amounts.
The lack of a functioning mortgage system in Nigeria, high cost of developing properties, coupled with the country’s large population whose earning capacity have not improved in years are some of the reasons while most Nigerians especially those in the cities are at the mercy of landlords for accommodation.
Whereas home-ownership level is 84 percent in Indonesia, 75 percent in Kenya and 56 percent in South Africa, it is only 25 percent in Nigeria whose population is estimated at 200 million. Going by United Nations projection, the country’s population will be as high as 400 million in 2050.
“The major issues that continue to affect housing delivery in Nigeria, which also account for the wide demand-supply gap, include constraints related to the high cost of securing and registering secure land title,” said Nasir El Rufai, Kaduna State governor said.
Nigerian born Taiwo Orishayomi is a promoter of rent-to-rent in the UK and claims she earns £10,000 (N4.6 million) a month in ‘passive income’. She has even written a book about it called Rent2Rent: Massive Cash During a Massive Crash.
The rent-to-rent investors in London said their systems are above board and perfectly legal. They say landlords know what is going on and agree to a guaranteed rent while the rent-to-renter looks after the property, does small maintenance jobs and finds and manages tenants.
While the rent-to-rent model which is being adopted in the UK and some other parts of the world comes with growing concern in regards to scam, overcrowding and lack of tenancy rights due to under-regulation, it can help to reduce Nigeria high vacancy rate as an investor can rent properties and sublet it for a monthly or weekly payment as against the yearly or two years down payment currently demanded by landlords.
“I think if we have a guaranteed market and the bank is ready to finance, real estate developers wouldn’t have problems. Even if I make N3million from one house, I won’t mind, as long as it is bought as I construct but in a situation where you don’t know when the house will leave the market, we would have to make provision,” Adekunle Adbul, Managing Director of Metro & Castle Homes said.
According to Broll Nigeria, a real estate firm about 27,000m² of developments nearing completion is expected to be delivered in Nigeria’s real estate market. Other projects under construction estimated to be about 82,000m² will be delivered in 2-3 years. Meanwhile, approximately 64,000m² projects have been put on hold.
As a result of this data, Broll Nigeria revealed that landlords are looking at a pre-let of about 50 percent before proceeding any further with construction.
“However, given the current vacancy rate of premium quality buildings in the market, the likelihood of achieving this pre-let goal may be unobtainable,” the real estate firm said.