THE IMPACT OF INFRASTRUCTURE CONDITION ON RENTAL VALUE OF COMMERCIAL PROPERTIES IN MINNA NIGERIA

THE IMPACT OF INFRASTRUCTURE CONDITION ON RENTAL VALUE OF COMMERCIAL PROPERTIES IN MINNA NIGERIA

CHAPTER ONE

INTRODUCTION

1.1       BACKGROUND OF THE STUDY

Investments in infrastructural facilities do contribute immensely to the population growth of metropolitan cities of a nation. Good quality roads, railways, airport, educational institutions, security of life and properties and hospitals are essential for the smooth running of the economic sectors in a developing world. In many countries and for many years, economists, planners and surveyors have tried to provide answers to why economic growth is faster in some regions than others and why some cities grow faster than others.

With the availability of major investments in infrastructure of any city, there would be automatic population increase that would influence massive property development. It has been argued by Ogunba (1999) and Ighalo (1986) that rural-urban migration, rising purchasing power and demographic factors such as changes in the average family size are contributory factors to urban growth. Nigeria with 5.3 percent growth rate has a population of 140 million and it is one of the countries with the fastest rate of  urbanization in the world . One of the greatest challenges of successive governments in Nigeria had been the need to provide adequate housing to its teeming population.

Many scholars have attempted in varying ways to define or explain the meaning and concept of the term “infrastructure”. Notwithstanding the fact that it is not the intention of this paper to explore or examine the myriad of definitions, the National Research Council of the United States of America captured to a very great extent the totality of the term as referring to “both specific functional modes – highways, streets, roads and bridges; mass transit; airport and airways; water supply and water resources; waste water management; solid waste treatment and disposal; electric power generation and transmission; telecommunication and hazardous waste management – and the combined system these modal elements comprise. According to Okoronkwo and Ezeh (2012) cited in Okorafor et al, (2017), infrastructures are not the things with which nature has endowed man, but the profitable conversion of these natural resources for the advancement of the society and benefit of man. Rainfall for instance is a natural gift from God. It is not an infrastructure. It becomes one when man technically conserves this gift and develops it to serve as regular and functional water supply for agriculture, industries and for domestic uses.

Infrastructural decay occasioned by the neglect has bedevil most of our towns and cities in Niger State, Nigeria. The scenario is not perhaps totally different from what is tenable in other states of the federation. The term infrastructure refers to all the physical, social and economic elements needed to support the population, in addition to other municipal services which include sewer, water supply, natural gas and electric services, schools and police stations, roads, airports, etc. As society develops, the need to provide basic infrastructure for the wellbeing of their inhabitants arises. Most of the Infrastructure are capital intensive in the procurement and perhaps also in their maintenance, and these services are usually provided by the different levels of government in the federation although private sector participation is now gradually becoming noticeable due to the liberalization policy of some aspect of the national economy by the present administration.

Infrastructural development refers to the bringing into existence of the basic amenities and services which must be in place for a particular activity or pursuit. However, no nation can boast of significant development or an enhanced economy without providing the basic Infrastructure for the citizens’ well-being. In Nigeria, sale prices of properties vary for different suburbs due to their attributes. For people who live in urban areas or cities, infrastructure decisions may be influenced by the balancing of desires and the environments.

Therefore, infrastructure is discussed as a key influence in explaining property price dynamics. Minna metropolitan area was chosen for the study to evaluate the effect of established infrastructure and location amenities on commercial property values. The adequacy of infrastructure helps to determine the level of success that a country achieves in terms of coping with population growth, reducing poverty, or improving environmental conditions (World Bank, 1994). One veritable parameter of assessment and indicator of status of any spatial, especially urban system is the state of infrastructure. The efficiency of any form of human activity system including an urban area largely depends on the provision of efficient infrastructural facilities and services (Babarinde 1998). Hence the significance of infrastructure in the proper functioning of an urban area cannot be dismissed. Apart from being a major pointer of environmental quality, urban infrastructure is a critical socio-economic development of any urban area (Okusipe 1999).

It places an important and indispensable role in the economic, social and environmental aspect of life of an urban setting. It has a pronounced impact on the quality of life. It is a back bone of any economy. Industry needs it to effectively and efficiently drive their production processes. It is evident that a myriad of factors such as the prevailing economic conditions, government legislation and policies, availability and state of infrastructural provision come into play to influence commercial landed property (values). In carrying out this study, all other factors were assumed constant while urban infrastructure was isolated and examined in relation to commercial property values. Hence this study will assess the impact of infrastructure condition on rental value of commercial properties in Minna, Nigeria.

1.2       Statement Of The Problem

The impact of infrastructural facilities in property market is very crucial. The fact remains that property units are fixed in location, they however differ in terms of their surroundings, neighborhood and the kind of community in which they are located. Considerable importance is attached in today’s world to property’s facilities as it influences the use and value of the property. Infrastructure and location has always been an important determinant of a property’s value. Many factors interplay to create property values. For commercial property, factors like accessibility, population, volume of trade patronage, adequate communication facilities, efficient transportation system and many other factors to be considered. Infrastructure and location may also be with the surrounding activities, and when these relationships are negative to the economic and social well-being of the property, such a property is said to have “Infrastructure and location obsolescence” and hence commands low rental value. Factors that negatively affect the value of real property, affects ownership’s goal or target income. They also cripple the investor’s interest by discouraging subsequent investment. Since facilities and location is considered as factors that may likely affect the rental value of commercial properties, and because commercial activities are very significant in strengthening the economic basis in our urban areas, therefore, playing important role in the socioeconomic development. This might also be the reason why most of the purposely built residential properties are being converted to commercial uses in our cities centers today. The primary objective of commercial properties is the derivation of financial gains, and, the demand for land is a reflection of the profitability or utility derivable from its use. The greater the benefit to be obtained from a particular use, the higher the rent that the user will be willing to pay for it. In Minna, there appear to be a wide range difference in the levels of rent passing on commercial properties in a particular areas and between different locations. Tenants are always faced with the fact that although, similar commercial properties commands different rental value within the same area, and also, when the properties are not situated in the same area or location, the rental value of same type of these commercial properties varies greatly. This study seeks to carry out an analysis of the impact of infrastructural condition on rental value of commercial property values in Minna. Minna is often seen as the urban city with the vilest infrastructure, inadequate storm drainage, and poor public water supply, garbage dumped on the road sides and non-existence or bad sewage system. The infrastructure of a city is a major determinant of the demand of commercial property. The infrastructure facilities in the study area affects the rate of commercial property demand in the area, this is because people will only buy or rent commercial property in areas were the infrastructure facilities development is sustainably available, this will help to enhance the economic and livability in the community. The impact between infrastructure and commercial property values has been the focus of many studies. Some of the earlier studies returned positive effect between infrastructure and commercial property values while others showed negative effect. Possible effect between infrastructure and commercial property values have therefore elicited the interest of the researcher in this direction. It is against this background that this study was conceived.

1.3       Aim And Objectives Of The Study

The aim of this study is to examine the impact of infrastructure condition on rental value of commercial properties in Minna, Nigeria. To achieve this aim the under listed objectives will be pursued.

1. To identify the types and state of infrastructural facilities available to the commercial properties in Minna.
2. To examine the adequacy of infrastructural facilities for commercial properties in Minna.
3. To identify the regularity, effectiveness and functionality of infrastructural facilities in different areas on commercial properties in Minna.
4. To analyze the rental values of shops and offices, as a result of infrastructural facilities in Minna.
5. To establish the effect of infrastructural facilities on commercial property values in Minna.

1.4       Significance of the Study

This project is an attempt to assess the impact of infrastructural condition on rental value of commercial properties in Minna, the study discuss the types of residential property in the study area, identifies the types and condition of available infrastructural facilities available and tries to establish the relationship between infrastructural facilities and commercial property rental value. The result of research will help developers, investors, real estate managers and valuers and the government to know the relevance of infrastructural facilities to commercial residential properties and its effect on rental value thus given them a better chance to an informed decision.

The study will assist public authorities in putting more efforts in infrastructural investment and as well take full advantage of the income that can be generated from such investment.

This study will also serve as a reference material for subsequent research related to the effect of infrastructural facilities on commercial property value where researchers, students and scholars will tap into the wealth of knowledge provided in this study.

1.5       Scope and Limitations of the Study

The research work is confined to the study of the assessment of the impact of infrastructure condition on rental value of commercial properties in Minna. It deals with rental value of residential properties such as shops, offices, two bedroom flats and three bedroom flats which are the common types of commercial properties found in the study area.

There are several limitation encountered during the conduct of this research. These limitations include: non availability of adequate data which played a major limitation to this write up because of non-cooperative attitude of some respondents who were not willing to give information and data needed to aid findings, time was another major factor which affect the study as the researcher do not have enough time to make detailed investigation on all the aspects of the study. And the general unwillingness of some respondents to fill the questionnaire provided for the research made it difficult to gather data needed for this research study at the most appropriate time.

1.6       Operational Definitions of Terms

Commercial property: this refers to properties mainly developed and used for maximize rental income\profit. They are built to provide accommodation for business accommodation e.g. shops, offices, show rooms etc.

Property: Property is by property dictionary as anything that is owned by a person or entity, which be divided into “real property” and personal property.

Infrastructure: This is seen as a wide range of economic and social facilities crucial to creating an enabling environment for economic growth and enhances the quality of life, Nubi (2002).

Value: Value is basically the worth of a thing which depend largely on the basis of assessment and unit of measurement.

Property Value: property value according to Millington (1981) is the money obtainable from a person willing and able to purchase property when it is offered for sale by a willing seller, allowing for reasonable time for negotiation and with the full knowledge of the nature and uses which the property is capable of being put.

Examination of Urban Infrastructural Facilities

CHAPTER ONE

1.0   INTRODUCTION

One of the most remarkable improvements associated with the process of socio-economic changes in Nigeria during the last fifty years has been the clamor for the increase in the state of infrastructural facilities.

         

Infrastructural facilities embraces entirely any services in which the various levels of government in the country as well as various communities are collectively involved in its provision.

This also includes services provided by voluntary agencies and private individuals.

Infrastructure is an embracing concept for the wide range of services offered by the government of any country in order to facilitate health living aesthetic.   Infrastructural facilities include; water supply, electricity, transportation, drainage system, communication e.t.c.  Non existence of these infrastructural facilities in any residential property will affect the rental value of such property.

In the light of the harsh condition Nigeria has been going through recently, skyrocketing cost of building materials and construction, high cost of finance and unpredictable economic condition, there has been decrease in infrastructure and little or no maintenance of the existing stock.   Investment must be strategically positioned where it has access to basic infrastructure so as to keep the property in a state to command a constant flow of income or benefit and appreciate it capital value.

Considering the problem of increasing the cost of providing infrastructure, the dilapidated one are still in use, the federal government and it agencies left the petroleum trust fund [P.T.F] doing all they could to improve the present infrastructure facility stock.  But the fact remains that, the government does not have enough fund to improve on the entire stock.

1.1     BACKGROUND OF THE STUDY

Real estate developers were constantly faced with the issue of making decisions on the type of property to invest their hard earned income or highly competitive, secured mortgage funds, which were attached with high lending rates. Property developers who want to invest in residential building development should endeavor to provide these two infrastructures amongst others with a view to earn attractive rental values on their residential property in Niger state in particular, towns and cities in developing countries. The study revealed that infrastructural facilities contribute 30.50% in the determination of rental values residential buildings in Niger state of which the provision of wall-fence round the building and installation of burglary proof in the entire window played the most important infrastructure. It is hoped that this will assist the local planning authorities to map out proposal/development in their different areas of jurisdiction in addition; it will render meaningful in the development of strategies for estate layout that will promote urban environmental quality thereby enhancing property values in the areas. The primary data collected were subjected to multiple regression analysis and the determination of the effect of the available infrastructure such as water, electricity, access road, kitchen, toilet, refuse disposal facility, wall-fence, installed burglary proof, drainage channel, day watch security and night watch security services. Government should continue to embark on comprehensive road rehabilitation by tarring all the roads in the areas of the city suffering from poor road network, poor electricity. It has now been realized that state government cannot provide all the necessary facilities, hence individuals and federal government should come to the aid of the state government for the provision of the essential infrastructure such as roads, water and electricity supply e.t.c.         

1.2   AIM AND OBJECTIVES OF THE STUDY

The aim of the study is to examine the urban infrastructural facilities in Lavun local government Kutigi with a view of making useful recommendation for the improvement of infrastructural facilities in Kutigi.    

The special objectives for realizing this aim are;

a.   To study the concept of urban infrastructure in the society.

b.   To identify factors effecting the efficiency of infrastructural facilities.

c.   To identify the available infrastructural facilities in the study area.

                      

1.3    STATEMENT OF PROBLEMS

The major problem identified in the course of the study is that the present infrastructural facilities are inadequate to meet the need of it users or occupier of the residential properties.             

This has posed a problem for the various levels of government of the day and parastatals on what to do to improve on the present situation considering the poor financing power of the government parastatals, high cost of construction and materials with the unpredictable socio-economic developments.  

It is therefore in light of these, that the study tends to identify these infrastructural facilities how far they have gone in meeting the demand and expectation of it users, and examining the adequacy of urban infrastructural facilities on residential housing development.

1.4   RESEARCH METHODOLOGY

In the process of completing data and information, for writing this project and to entrust a good project, the following were taking into consideration namely; availability; reliance, timeless, consistency.          

          SOURCES OF DATA COLLECTION

Under this data collection there were two sources consulted for collection of data.

A.  PRIMARY DATA COLLECTION                                                                                                  primary data collection method used by the researcher is entirely for this project at hand in this study.

The researcher used the following combination for primary data collection, these includes; colleagues in work and housing department in the local government and some developer, house owner.

B.   SECONDARY DATA COLLECTION

They include data from various text book on infrastructure and property development journalists in newspaper, pamphlets, article, symposium papers presented.

1.5     SCOPE OF STUDY

The study is expected to cover all areas in the Lavun local government, but as a result of local government factors, the population size has been reduced. In this regard, the study was centered only in Kutigi metropolis.      

1.6    SIGNIFICANCES OF THE STUDY

The importance of infrastructural facilities as a monument tool for residential property values is that the study will fund to serve as a guide to the government parastatals and private individuals in decision making especially in local government.

                                                                                                                                                                                

                                                  

CHAPTER TWO

2.0    LITERATURE REVIEW

2.1     INFRASTRUCTURE

There are various definitions, meaning and concept ascribed to the word infrastructure, right from the evolution and creation of town and cities throughout the world.  Some of the definition of infrastructure is here by examined.  Webster [1978] states that infrastructure are works constructed for public use of enjoyment especially when financed and owned by the government.                                                                        

The English Collins dictionary defined infrastructure as includes building, structures and use of land are provided by developers or statutory authorities example are railway, road bridges, gas, electricity ,water, sewage/waste disposal, telephone installation e.t.c.  From the above definitions it is clear that different perspective exist as regards infrastructure.  However, all point to the fact that infrastructure is the basis of development of any nation and that its provision in most cases is by the government.

2.1.1    TYPES OF INFRASTRUCTURE

Infrastructure is an embracing concept for the wide range of direct services offered by the government of any country so as to facilitate healthy living aesthetic.

Emeluruike [1997] attempted a classification of infrastructure in an urban area, which includes;

a.     Communication infrastructure like airfields, roads, railways, telecommunication, water ways and port.

b.    Health infrastructure like hospitals, teaching specialist and general hospital clinics and training of health personnel.

c.      Social infrastructure like recreational facilities, play grounds, sport facilities, natural gardens, cinema and theatres.

d.    Educational infrastructure like education institution and facilities at all levels.  Printing presses and bookshops.

e.      Technological infrastructure like research institutes, design and fabrication, studies and workshop.

f.      Religions infrastructure like place of worship i.e. churches, mosques e.t.c.

g.     Housing infrastructure including the housing shell, roads, water, energy, recreational facilities e.t.c.

h.    Agricultural infrastructure like irrigation and storage facilities.

i.       Judicial infrastructure like court head office and libraries adequate system e.t.c.

j.       Power or energy infrastructure like facilities for generation and distribution of various types of power.

2.2    CONCEPT OF VALUE

Encyclopedia Americana volume 27 page 867 states that value in economics is the esteem in which a thing is held but also, under ordinary commercial condition, power in exchange, value depends on two things along desirability and scarcity.  Value means the worth of a thing and is animated if expressed in monetary terms.  Value in a broad sense means the capacity of a thing to satisfy wants.  Value is commutative and could mean many things to many people.

2.3     CONCEPT OF PROPERTY VALUES

D. Cadman and A. Crowe [1978;4] property development is an industry that produces building for occupation by bringing together various raw materials , public services, capital labour and  professional expertise of which land is one.  The complete building may be let or sold to an occupier.   If it is let, it can be held as an investment or sold to an investor.  It is a venture which to a greater or looser extent is beset by risk.       

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