Nigeria’s long term rent payment system saves landlords from COVID-19 crisis
…only monthly rent collectors are hit
For most Nigerian landlords who adopted the long term rent payment system, the impact of the coronavirus outbreak on the real estate market is nothing but news.
This class of landlords has not been affected by the wave of the pandemic as their tenants renewed their rents before COVID-19 started affecting their wallet. But that is for early rent payers.
Although unlawful, most landlords in the major cities in Nigeria require tenants to make down payment of not less than one year. In some cases, tenants are expected to pay rents three years upfront .
“As at the ending of February, all my tenants had renewed their rent for the year 2020, so I have not been affected by the coronavirus impact except, of course, they are all now staying at home which means more pressure on the facilities in my property,” Johnson Babajide, a landlord with three properties in the mainland axis of Lagos state, said.
Meanwhile, the Lagos Tenancy Law 2011 states that it is illegal for a landlord or his agent to demand or receive rent in excess of six months for a monthly tenant, or one year from a yearly tenant. It is also unlawful for the sitting tenant to offer or pay rent in excess of one year for a yearly tenant and six months for a monthly tenant.
“I recently moved to Yaba and the landlord didn’t collect anything less than two years rent as he claimed that the property was a new one,” Bisi Olalekan, a 25-year old accountant, told BusinessDay in Lagos, adding that she would have been required to pay for one year if it was an old building.
Checks by BusinessDay revealed that Nigeria has one of the most rigid rent payment systems in Africa as the majority of landlords require upfront payment on apartments. This is despite the fact that most tenants receive their income on a monthly basis.
The frequencies at which rent is paid and how much is required as an upfront payment are the two criteria in determining rent payment system in a country.
Using both indicators, Nigerian cities come at the bottom of the pyramid in Africa, accompanied by Cameroun, Ghana and Sierra Leone, as data available shows they are all in the same level.
This is, however, not the case in some African countries like Botswana, South Africa, Benin Republic, Togo and Rwanda, where rent payment frequency is on a monthly basis without an upfront or down payment.
On why landlords in Nigeria prefer upfront rent payment, Adeniyi Akinlusi, president of Mortgage Bankers Association of Nigeria (MBAN) and CEO, Trustbond Mortgage, said some landlords collect upfront payment of two 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,” Akinlusi said, adding that the “fear of high default rate due to the lack of credit collection system,” is a challenge.
With the highest population in Africa, Nigeria has a housing deficit of more than 17 million units, and according to the Association of Housing Corporation of Nigeria (AHCN), an umbrella organization for all federal and state housing agencies, more than 90 percent of new homes utilise funds from personal savings for incremental construction.
Available report shows that the average rent of Nigerians between 20-35 years of age is around $230 monthly and the average price of one-bedroom in megacities like; Lagos, Abuja and Port Harcourt is around $300 per month.
This means that a lot of people cannot afford to rent by themselves and the problem of upfront annual rent requirement has also created a product gap that can only be bridged by one that can split those payments into a monthly denomination.
A newly employed Eze Ikechukwu, a graduate trainee with one of the consulting firms in Lagos, has been squatting with his friend since last year when he relocated from Abakaliki in Ebonyi State to Lagos as his rent budget could not cover for a one-year payment.
Companies like Rent-Small-Small, one of Nigeria’s first ‘On-demand Home Rental Solution’ with flexible payment and rent insurance, are however providing products that can bridge the gap created by Nigeria’s rigid rent payment system.
But at a time like this when coronavirus has almost brought economic activities to a standstill in Nigeria, some landlords who collect rent on a monthly basis are expected to see high default rates as some Nigerians have been projected to either lose their jobs or have their salary slashed by their employers.
“If the pandemic stays on for the next 3 months, people will lose their jobs, some will have their salaries put on hold, and others will have to take a salary cut; all of these will increase default rate and it’ll be devastating, especially for the traditional real estate players and landlords who are highly dependent on rental income,” Tunde Balogun, CEO of Rent-Small-Small, said.