AN ASSESSMENT OF RENTAL VARIATIONS IN COMMERCIAL PROPERTIES IN WUSE 1 AND WUSE II ABUJA

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AN ASSESSMENT OF RENTAL VARIATIONS IN COMMERCIAL PROPERTIES IN WUSE 1 AND WUSE II ABUJA

CHAPTER ONE

1.0       INTRODUCTION

1.1       Background of study

Commercial properties in form of housing or real estate has long been perceived by the general public as a form of basic necessity and often represents the one single largest investment in real estate investment portfolio. Toivonen and Viitanen (2016) underlined that commercial property market is closely linked to the surrounding society as commercial buildings have several economic, environmental, political, social and cultural influences. Toivonen and Viitanen (2015) also analysed the forces of shaping of future commercial property market. Many important indicators, such as demand, supply, vacancy rates, absorption volume, proposed projects, as well as economic indicators and legal and tax matters are being included in the regular property market overviews.

According to Boon and Higgins (2017), rental value is a key parameter for measuring real property performance. It is also a major cost for tenants and an important source of income for the real estate investors. Key property market participants such as investors and developers often use rental value as an indicator to appraise the viability of their real estate development and investment schemes. On this basis, understanding the nature and variation in rental value of commercial property provides a better comprehension of the dynamics of the commercial property market. Also, rental growth indices are often incorporated into discounted cash flow analysis for the appraisal of real property investments (Boon and Higgins, 2017).

Rural – urban migration and rapid growth in population have led to higher level of urbanization in Nigeria cities which have resulted to high demand for the existing limited supply of commercial property consequent rent for such properties increased considerably. This trend has continued with the effect that “the average worker is paying 30% to 40% of   his salary as rent” (Oshadiya, 2005). Thus the increase in rents on the properties has led to the variation of rent on properties. Thus, professionals in the real estate industry in Nigeria require better knowledge of commercial property rental dynamics as well as the key factors that influence changes in commercial property rents in Abuja. It is against this background that this study seeks to assess the rental variation in commercial properties in Wuse I and Wuse 2 Abuja

1.2       Statement of research problem

Problems of real estate investment especially commercial properties in urban centres has often been viewed in terms of quantitative deficiency and qualitative inadequacy with little or no attention to the problems of increasing rent. As there are many business outfits  struggling to get accommodation in terms of offices, shops warehouse etc, most of those that already have a roof over their heads in rented accommodation, especially the majority low income urbanities are not comfortable because of sprawling rent increases.  The problem of variation in rental value of residential property reached a peak during the crisis stage in the early 1970s which led the then Federal Military Government to set up a Rent Panel to review, among other things, the level  structure of rents in urban centers. Today, the rent situation has not improved rather it has been further worsened by the equally sprawling inflation which has tremendously shot up the cost of building materials. The purpose of this study is, therefore, to carry out an assessment of rental variations in commercial properties in Wuse zone I and Wuse II Abuja.

1.3       AIM AND OBJECTIVES OF THE STUDY

The aim of this research is to assess rental variations in commercial properties in Wuse zone I and Wuse II Abuja.

The specific objectives of the study are:

1. To identify the types of commercial properties prevalent in Wuse zone I and Wuse II.
2. To assess rent passing on commercial properties in the study area
3. To examine the factors affecting rental values of commercial property in the study area
4. To examine the causes of rental value variation Wuse zone I and Wuse II Abuja.

1.4       Research questions

The following research shall guide the researcher to achieve the aim and objectives of this study:

1. What are the types of commercial properties prevalent in Wuse zone I and Wuse II Abuja?
2. What is the rent passing on  commercial properties in the study area
3. What are the factors affecting rental value of commercial properties in the study area?
4. What are the causes of rental value variation in Wuse zone I and Wuse II Abuja?

1.5       Significance of the study

The finding of this study will be of benefit to the following groups;

Firstly, tenants who are charged rents based on different reasons, especially when the properties are of the same nature (physically). This will again enable the investors not only to understand how occupier thinks, but also why and the things they consider before acquiring properties for certain uses.

Secondly, the generality of the public can now understand the reason why the rents being commanded by commercial properties have to differ and changes over the years.  Lastly, this research work will help to determine the factors influencing commercial properties which are an essential pre-requisite to successful development as well as stimulating interest in the students to carryout out further research on the topic.

1.6       Scope and limitations of the study

The study is analyze the variation in the rental value of commercial properties in Wuse zone I and Wuse II Abuja. The scope of this study will be limited to a period of five years (2015 to 2020) and it is restricted to commercial properties such as shops, warehouse and offices available in Wuse zone I and Wuse II Abuja.

Limitation

Expectedly, this work met with some hindrances during the stage of data collection. The issue of rent passing on a property (commercial) is usually regarded as classified information, which is not easily disclosed to people particularly researchers. This was largely suspected to be the reason why some Estate surveyors, property owners, tenants, Estate firms, property companies and even Estate agents who were approached through oral interviews, discussions and visitations found it rather difficult to reveal essential information despite every explanation that the exercise is strictly for academic purposes, a good number of them, still nursed the fear that it may be for property rating and taxation purposes.

There was also the problem of logistics occasioned by the society. The researcher worked with a very light budget throughout the period of study as the frequent and repeated visits to relevant persons and offices entailed quite some money. Moreover, also recall that some of the interview respondents were not co-operative as they kept on playing to the gallery as a means of avoiding supplying the required information. On a general note however, the researcher ensured that these bottle – necks never affected the findings of this study since the success far outweighed the hindrances as enumerated.

1.       Operational definition of terms

Rent: The universal dictionary of the English language (2016) defined rent as the regular payment made for the use of land or buildings that belongs to someone else. The Economist defined rent as “the revenue from land resources that is equal to the value of its marginal services rendered in a productive process” (Richfield, 2011).

Land: Section 205 of the property act of 1925 defined land to include land of any tenure and mines and minerals wealth or not held apart from the surface and building or part of the building, and other  corporeal hereditament, benefit right or privileges in or derived from land.

Property: Property in a technical legal term means “a unit or object whether tangible or intangible upon which interest is created  and over which control or right of ownership is exercised  by the owner of interest.

Landed Property: Landed property or landed estate is a property that generates income for the owner without the owner having to do the actual work of the estate.

Rental Value: Is the maximum amount which a property will let in the open market at any giving time.

Real Estate: Is a legal concept encompassing all the interests, right and benefit related to ownership. Properties consist of the right of ownership which entitle the owner to a specific interest or interest in what is a physical entity and its ownership Olusegun (2003).

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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.