Factors That Affect Rental Values in the Urban Areas in Nigeria
Many developing countries depend on the rental sector for the supply of housing for the vast majority of its urban population. Nigeria is no exception. A significant proportion of Nigeria’s urban population relies on rental housing delivered by both the private and public sectors. (Tipple,1987).The increasing demand for housing in Nigeria may be as a result of rapid urban growth fuelled by increased population growth . The type of housing people live in is an indication of their level of poverty or wealth and the availability of facilities have implications for health and the environment. Concerns about sanitation arise and there is a challenge of refuse management in Nigeria. To some extent, rent has the ability to alter the distribution of population within a society. It tends to reserve some parts of society for particular classes of people.
This could lead to the variability of rental value. Over the years, one variable factor that has affected demand for accommodation is the price of accommodation (or rent), which is the amount of money paid regularly for the use of someone’s land, building or machinery. Revenue from rent serves as the main source of income for many real estate developers and house owners. The attractive incomes from rent have led to the conversion of various structures into apartments for rent. Though there are differences in inter-city rents, very little is documented about the factors that determine the rental charges of apartments, which can constitute a source of distortion in the setting of rents. Urban housing rents differ depending on the unique circumstances that exist in a particular urban area. Thus one can deduce that there appears to be no particular mechanisms upon which rent standards are based even within the same country. The question that then arises from this assertion is „what factors determine rents charged for accommodation. The determinants of property values can be grouped into many factors. Wilhelmsson (2000) for instance, identifies four main factors that affect demand for properties and hence the price, to include the property’s structural attributes, its location or neighbourhood amenities, its environmental attributes and macro attributes like inflation and interest rate. However, independent variables are limited to property structural characteristics and location in terms of neighbourhood quality and accessibility (Bowen et al., 2001).
The location in terms of neighbourhood characteristics and accessibility, the structural property or physical characteristics, are discussed below to show the influence of rental values.
i) Location
The importance of location in real estate is a high determinant of rent. There is a real estate adage that states that the three most important factors which determine property values are (i) location, (ii) location and (iii) location. Spatially, no two properties are the same and indeed, there is a consensus among valuers that location is the most important factor in property value determination (McCluskey et al., 2000). The importance of location is evident by the fact that location physically fixes a property in space and thereby defines its distance from features such as commercial, transportation and leisure activities. Again, in cases where houses within a particular sub-market or neighbourhood are homogeneous, many of the amenities that are common to those properties are best represented by location (Gelfand et al., 1998). Location is an inherent attribute of a house which directly determines the quality and hence the market value of the house. The theory of housing immobility is premised on location. The location influences on the value of residential property may arise or fall from a number of sources. These are grouped under neighbourhood quality and accessibility (McClauskey et al., 2000). In Bamahu for instance location has been one of the inherent factors that is likely to affect rental values in the municipality since it is closer to University For Development Studies.
ii) Neighbourhood Quality and its Influence on Property Values
Neighbourhood may be defined as a geographic area within which there is high degree of use homogeneous or similar between contiguous parcels. Neighbourhood is defined in an economic sense as an area within which relatively the same prices prevail for properties that permit approximately the same types of uses and socioeconomic status.
iii) Accessibility to the Central Business District
Easy and convenient accessibility within the urban areas will determine the price to pay for properties within a particular neighbourhood (Brigham, 1965). Especially in Nasarawa, a observation indicates that, Such accessibility measures involve property proximity to market, desirable supporting facilities such as transportation facilities, place of employment, shopping and leisure facilities etc. The areas with an easy assess to the central business district of the Municipality. Preliminary Survey indicates that these areas that afford relatively easy access to various necessary or desirable activities have higher property values than locations that do not have such easy access, all other things being equal. This accessibility facilitates the movement of people and goods from one site to the other.
iv) Accommodation and Size of Rented Property
The size of accommodation provided by a house can influence the value or price to pay for the house (Brigham, 1965). Such factors include the number of bedrooms and other rooms, the number of floors, floor size, land area etc. Generally, individual buyers have their own needs, taste and preferences concerning the size of accommodation. Such accommodation needs, tastes and preferences are influenced by the size of the family, prestige and status of the individual (Brigham, 1965). Etc. The amenities enjoyed by a household determine the level of rent they pay. If individuals get the amount and size of accommodation they want, they will be willing to pay higher value for it than they would pay for property with more or less the amount of accommodation they require. As Sirmans et al. (2005) find, the number of rooms (bathrooms, public rooms and bedrooms) dominantly affects price in the positive direction. This means that as the number of rooms increase, the price of the property also increases. According to our first hand information received in the study area, the size of the accommodation does not determine the rental value for which a property should go for.
v) Structural Improvement and Materials Used For Construction of Property
The materials that go into the construction of a property and the structural improvement made to the property affect the price to pay for the property (Brigham, 1965). Physical factors such as the type, style and quality of floor finishes, roof, ceilings etc will influence the utility to be derived from living in a particular property and hence, the rent one may be willing to pay for that property. Structural improvements like the availability of garage, swimming pool, gardens, fence wall affect the value of residential accommodation. These utilities are not found in Wa Municipality. Usually, the availability of improvements like swimming pool, garages and gardens in a property will make rational buyers pay higher price for such a property than they will pay for similar property without such improvements, all other things being equal. (Brigham, 1965). Preliminary survey from landlords in Bamahu indicates that physical improvements such as renovation and other building services make the built environment conducive and affect rental values in this area
vi) Age and Condition Of Building
The age and condition of a property will also influence the price to pay for the property. (Brigham, 1965). In examining the factors that are mostly included in hedonic models to determine house prices, Sirmans et al. (2005) find that the age of property influence the value of the property mostly in the negative direction This is not surprising because as the age of the property increases, the economic value of the property decreases and hence the utility to be
derived from the property decreases. In relation to the study area tenants consider the condition of building before renting and this affect rental values.