Why Nigeria has one of Africa’s most rigid rent payment systems

Endurance Okafor

The larger population of Nigerians who cannot afford to buy their own houses are usually at the mercy of landlords for accommodation and due to the rigid rent payment system in most cities, tenants are forced to pay through their nose.

To rent an apartment in Nigeria, one has to make a down payment of not less than one year. In some cases, tenants are expected to pay up to 3 years rent upfront.

Data from a survey by Lagos-based Estate Intel analysed by BusinessDay shows that this is not the case in some African countries like Botswana, South Africa, Benin Republic, Togo and Rewanda, where rents are paid on monthly basis without  an upfront or down payment.

“I borrowed money to finish my building; I need someone that can pay me as much as possible. I spent a whole lot on the house; so two years rent is the least I can take from any one,” Johnson Babajide, a landlord with three different properties on Lagos state the mainland, said.

 He added that, for him, “property development is a serious business; I have other projects I want to complete, so you won’t blame me for wanting urgent cash plus the bank loans I need to repay.”

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, accompanied by Cameroun, Ghana and Sierra Leone, as the data from the survey by Estate Intel revealed that they are all at the same level.

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 of ways to recoup and pay up as soon as possible.

“The second reason may be because they are not sure that the tenants will be consistent in their monthly payment,” he added, noting,  “the fear of high default rate due to lack of credit collection system is also a challenge.”

The Lagos Tenancy Law 2012 provides that it is unlawful for a landlord or his agent to demand or receive from a new or prospective tenant, rent in excess of 1 year in respect of any premises; it is also unlawful for the new or prospective tenant to offer or pay rent in excess of 1 year.

“Most of these landlords collect 2 years rent because they are trying to raise funds to pay up the loans they usually take from banks to execute their  projects,” James Olanrewaju, an agent that covers Unilag, Akoka area, said.

Nigeria has  over 17 million housing deficit 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.

Credit Sales reports that the average rent of Nigerians between 20-35 years of age is around $230 monthly and the average price of one-bedroom in mega cities 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 there is the problem of upfront annual rent requirement; this means that there is need for products that can break those payments into monthly denomination because a lot of people earn their salaries on monthly basis,” Ibraheem Babalola, MD/Cofounder of Muster, an AI-powered peer-to-peer shared housing market place said.

 Eze Arua is a 22-year old accounting graduate who recently relocated from Abakaliki in Ebonyi State to Lagos. Since his five months stay in the city of excellence, Arua has been squatting with his friend.

“The money I brought to Lagos to secure an accommodation is half the price of the cheapest apartment I have seen. I pleaded for the landlords to allow me stay for some months but none has agreed; so I am saving up to get one year rent,” Arua lamented.

He  is not the only one on this table. A call by BusinessDay to some  other cities revealed that Nkiruka in Portharcout and Ahmed in Abuja were going through the same situation.

“Another reason landlords demand upfront payment is due to the high demand for accommodation which doesn’t have an affordable and corresponding supply to meet the need. This gives the landlords the power to dictate the conditions,” Akinlusi said.

Nigeria has one of the most expensive property markets in the world. It is the second most expensive in Africa after Angola and the reasons for this go beyond just the construction cost which is also a factor.

Other factors,  which are extraneous, include high cost of funds, government charges, high cost of land, and market uncertainty or the shelf life of the property which means the time the property has to stay in the market before it is sold.

Also, a key factor for the housing challenge in Nigeria is the high mortgage rate. Typical mortgage interest rates in Nigeria range between 7-10 percent for Federal Mortgage Bank of Nigeria (FMBN) and between 15-25 percent for commercial mortgage institutions, making it one of the highest in the world.

In advanced economies, the mortgage industry makes significant contribution to economic development with single digit interest rates. Nigeria’s roaring inflation rate and the attendant high mortgage rate dampen housing demand and blunt developers’ investment appetite.

No wonder Nigeria has one of the world’s lowest mortgages to Gross Domestic Product (GDP) rate at 0.6 percent which lags Ghana’s 2 percent, South Africa’s 30 percent and crawls after the U.S and UK rates of 60 percent and 70 percent respectively

IFMA commends Lagos move to engage facility managers on govt’s estates

The move by Lagos State government to engage facility managers to provide professional management and services on government estates has been commended by International Facility Management Association (IFMA), Nigerian chapter.

The association has therefore assured the state government of its readiness to support and complement this laudable initiative through advisory and recommendation of credible and reliable facility managers with professional capability and pedigree.

“This move, in our view, is long overdue considering the value–adding benefits the tate government and the residents of the estates will derive from its effective execution,” Segun Adebayo, Acting President of the association noted.

“It will not only promote the wellbeing of the residents but also create a sustainable model of management of the estates through professionalism and international best practice,” he added.

Adebayp explained that, apart from the above benefits, the plan would also create jobs and employment for artisans and technicians in Lagos which would further translate to the preservation and enhancement of the life cycle of the assets in the estates in particular and the estates in general.

Over the years, IFMA has been a progressive partner with the state government through quality collaboration with Lagos State Infrastructure Asset Management Agency (LAIAMA)and government technical colleges in the state.

“Our strategic partnership and collaboration with the state agency and technical colleges has led to several initiatives like Facility Management Advocacy, Mentorship Programme for the students of the technical schools and celebration of World FM Day which is an annual global celebration of the achievements of facility managers,” Adebayo disclosed.

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