THE IMPLICATION OF VACANCY AND OCCUPANCY RATES TO PROPERTY INVESTMENT MARKET IN NASARAWA
ABSTRACT
This study examines the implication of vacancy of occupancy rate to property investment market in Nasarawa town. The specific objectives of this are to ascertain the extent of vacancy of properties in the Nasarawa town, to evaluate the causes of vacancy of properties and to examine the implication of vacancy of occupancy rate to property investment market in Nasarawa town. The research adopted the survey design which offers the opportunity to gather information through the use of questionnaires, personal interview and observation. A structured questionnaire was administered to the respondents to gather relevant data for the study. Data were presented and analysed using simple statistical tools such as tables and percentage. The study revealed that the housing stock in Nasarawa is very adequate and that the extent of vacancy and occupancy rates of property is on the positive side. The study also shows that the vacancy and occupancy rate can affect the return on property investment. Finally, the researcher recommend that property investors should invest more in Nasarawa real estate market since the market has a positive indicator of making higher return on investments as it exhibited low vacancy rate and higher occupancy rate and that the investors and property developers should be very conversant with the forces of demand and supply of the real estate market so as to make investment decision that will not adversely affect their investments.
CHAPTER ONE
INTRODUCTION
1.1 Background of the Study
A vacancy rate serves as an important indicator of the health of a real estate market. But we cannot draw sound inferences about a market just by observing the rate alone because many factors contribute to a vacancy rate. The same rate may tell different stories, and different rates may tell the same story.The vacancy rate is the percentage of all available units in a rental property, such as a hotel or apartment complex, that are vacant or unoccupied at a particular time. It is the opposite of the occupancy rate, which is the percentage of units in a rental property that are occupied. High vacancy rates indicate that a property is not renting well while low vacancy rates can point to strong rental sales.
The vacancy rate is calculated by taking the number of vacant units, multiplying that number by 100, and dividing that result by the total number of units. The vacancy rate and occupancy rate should add up to 100%.In real estate, the vacancy rate most often represents units that are vacant and ready to be rented, units that have been turned off upon the exit of a tenant, and units that are not currently rentable because they are in need of repairs or renovations. A property owner can use vacancy rates as a metric for analysis. Changes in the percentage of vacant units versus occupied units, the length of time occupied units are remaining active, or other rental conditions can provide guidance regarding how competitive a property owner has made the property. If a property owner is charging significantly more or less than the rest of the rental market, this may be reflected in the overall vacancy rates. It can also provide information regarding the effects of price changes or advertising on unit occupancy.
While vacancy rates are commonly used to assess an individual property’s performance, such as a hotel monitoring its nightly vacancy rate, aggregate vacancy rates are also used as economic indicators of a real estate market’s overall health. Many firms servicing the commercial real estate space gauge the strength of the overall industry using metrics such as vacancy rates, rental rates and construction activity. According to the natural rate hypothesis, fluctuations in apartment rents are driven by deviations in the vacancy rate from equilibrium or “natural” levels. One reason to estimate natural vacancy rates is to confirm this hypothesis. Beyond that, however, estimates of the natural vacancy rate for a rental housing market provide information that is potentially useful for investors, lenders and other real estate professionals. Comparing the natural rate at a point in time to the actual vacancy rate provides some indication of future rent movements in that market. In addition to its effect on the movement of rents, the level of the vacancy rate has direct implications for the return on property investment. In long-run equilibrium, the lower the natural vacancy rate, the greater the amount of rent generated by a given rental property, everything else held constant. If the natural vacancy rate declines over time, the return on rental property investment will rise, ceterisparibus.
Housing markets are often modeled as a series of separate but related submarkets, with differing supply and demand conditions in each. In the case of a rental market, there may be separate submarkets for different apartment types (one-bedroom, two-bedroom, etc.), and for different geographic locations. If submarkets exist, it is possible that natural vacancy rates will vary by submarket. In that case, information on natural vacancy rates is made more useful if available atthe submarket level.
Empirical support for the existence of a natural vacancy rate in rental housing dates back toSmith (1974). Since then, a number of studies have focused on variations in the natural rate acrossboth space and time. For example, Gabriel and Nothaft (1988) provide evidence of substantialvariation across major U.S. metropolitan areas. In a more recent paper, Gabriel and Nothaft (2001)find the duration and incidence of vacancies, and the natural vacancy rate, to vary acrossmetropolitan areas with a number of factors including housing costs, heterogeneity of the housingstock, tenant mobility, and population growth.
1.2 Statement of the Problem
The rental vacancy rate is the fraction of rental properties not rented at a point in time. This captures pressures in the rental market. It matters for understanding the balance between supply and demand, future pressures on rental prices and the typical duration of vacancy for a landlord’s budgeting purposes. The relationship between the vacancy rate and the housing production rate is expected to be negativeas well. If the vacancy rate is high, the supply of dwellings will be higher than the demand for dwellings, which means that the house prices are stable or decreasing. Consequently, developerswon’t have much stimulus to engage in housing starts and the housing production rate will berelatively low. This study seeks to examine the implication of vacancy of occupancy rate to property investment market in Nasarawa town.
1.3 Aim and Objectives of the Study
The aim of this project is to examine the implication of vacancy of occupancy rate to property investment market in Nasarawa town.
The specific objectives of this are as follows:
- To ascertain the extent of vacancy of properties in the Nasarawa town
- To evaluate the causes of vacancy of properties in the study area
- To examine the implication of vacancy of occupancy rate to property investment market in Nasarawa town
1.4 Research Questions
The following research questions will serve as a guide to the researcher:
- To what extent is vacancy of properties in the Nasarawa town
- What are the causes of vacancy of properties in the study area
- What are the implication of vacancy of occupancy rate to property investment market in Nasarawa town
1.5 Significance of the Study
The findings of this research “the implication of vacancy and occupancy rate to property investment marketstudy will serve as a guide for investors to be able to make reliable investment decision that will ensure high return on investment.
The result of this study will serve as a guide to other researchers who are interested in further research into the implication of vacancy of occupancy rate to property investment market in Nasarawa and Nigeria at large.
1.6 Scope and Limitation of the Study
The scope of this study covers only the implication of vacancy and occupancy rate to property investment market in Nasarawa town, this implies that the population of the study will be limited to respondents from Nasarawa town alone.
1.7 Operational Definition of Terms
Vacancy: Dictionary.com define vacancy as the state or condition of being vacant or unoccupied; emptiness.
Occupancy Rate: A measurement expressed as a percentage ofthe total amount of occupied space divided bythe total amount of existing inventory. Occupiedspace is defined as space that is physicallyoccupied by a tenant. It does not include leasedspace that is not currently occupied by a tenant.
Vacant Space: Vacant space is defined as space that is notcurrently occupied by a tenant, regardless of anylease obligation that may be on the space. Vacantspace could be space that is either available ornot available.
Percent Leased Rate: A measurement expressed as a percentage ofthe total amount of leased space divided by thetotal amount of existing inventory. Leased spaceis defined as space that has a financial leaseobligation. It includes all leased space, regardlessof whether the space is currently occupied by atenant. Leased space also includes space beingoffered for sublease.
Investment: An investment is an asset or item that is purchased with the hope that it will generate income or will appreciate in the future.
Real Estate:Real estate is the property, land, buildings, air rights above the land and underground rights below the land. The term real estate means real, or physical, property.
Property: In common law, real property (immovable property) is the combination of interests in land and improvements thereto, and personal property is interest in movable property. Real property rights are rights relating to the land.
Investor: An investor is a person that allocates capital with the expectation of a future financial return. Types of investments include: equity, debt securities, real estate, currency, commodity, token, derivatives such as put and call options, futures, forwards, etc.
Availability Rate: A measurement expressed as a percentage of the total amount of available space divided bythe total amount of existing inventory. Availablespace is defined as the total amount of spacethat is currently being marketed as available forlease in a given time period. It includes any spacethat is available, regardless of whether the spaceis vacant, occupied, available for sublease, oravailable at a future date, although it excludesspace available in proposed buildings.
1.8 Background of the Study Area
Nasarawa Emirate in Nasarawa State is located in the Central region of Nigeria. It is flanked by Keffi and the Federal Capital to the North. To the South, it is bounded by Benue River and to the west; it bordered the present Gadabuka and Toto Local government area which are of course, part of the Emirate. To the East, it is bordered by Doma, Lafia and Keana Local Government Areas all of Nasarawa State.
The founding of Nasarawa Emirate in 1835 AD was the consequence of palace tussle that arose in Keffi between UmaniMakamaDogo then Madaki of Keffi and Jibrilu, son of Abdu Zanga (first Emir of Keffi).
Umaru later known as MakamaDogo was born in 1958 at Ruma village in Katsina Emirate, his father was UsmanKabawana and his mother Amina. Umaru migrated to Zana, having lost his parent where he stayed with Emir Musa, he was accorded recognition by ShehuUsmanDanfodio, among the jihadists that captured Zana under Musa.
After receiving the flag from Danfodio, Emir Musa sent Umaru Southward of Zana to spread the Islamic faith,Umaru arrived at a place called Zana near the present Nasarawa region. He met Abdu Zanga a Fulani normad from Katsina, they both became very close that Umaruadviced them to present themselves to the Emir of Zana for recognition, this was done successfully, which triggered the granting of a request of Abdu Zanga by the then Emir of Zana to settle in a place called Keffi which was ruled by Abdu Zanga since he was the eldest with Gunki, his Madaki and Umaru as Makama.
In 1802, Keffi was famous for the exploits of the great warrior Umaru and with Abdu Zanga. A misunderstanding between Abdu Zanga and MakadiGunki later made the duo paeted ways.
On the sickbed of Abdu Zanga, he gathered his brothers and sons and told them to appoint UmaruMakamaDogo as the Emir of Keffi which was never realized after the death of Zanga due to the betrayal to one Albarka. However , MakamaDogo was advised to move Westward of Keffi where the Kwato (Igbira) resides, fought then and established his own kingdom but he kicked against the idea and moved Yankardi, where he camped about ten kilometer South of Keffi.
Makama left his sons AhmaduManmanGaladima and ManmanSani in Keffi as a flash back. He later left Yankardi where he arrived at a place occupied by Bassa speaking people called Tammah, met Bagobiri known as Kasimau, who assisted him in the establishment of a kingdom called Nasarawa (meaning victorious). MakamaDogo fought many wars in the course of his Islamization, fought Afo speaking people, conquered Ubbe, Usheni, Agwadama, Itta and Gwaffa.
MakamaDogo also conquered Panda due to some misunderstanding between him and Ohimege (the ruler of Panda). MakamaDogo fought the people of Toto (Igbira people) because of the combination of Islam and traditional way of worship by the people. After fighting other kingdoms like Dogo, Agaza and Udeni, Umaru told MadakiAhmadu his eldest son to continue leadership after his death and should please be buried in Nasarawa town.
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