Landlords and house developers are currently apprehensive over increasing rent defaults from tenants across the country, LEADERSHIP learnt.
This development is linked to shrinking disposable income, currency devaluation, high inflation, amongst others as many tenants were struggling to renew their rents and lease agreements, thus, raising concerns among existing landlords and property investors whose investments are at risk of zero returns.
Build-to-let, buy-to-let and house-for-rent segment of the real estate market in Nigeria are currently facing uncertain future as investors are shunning that sub-sector due to rising rent defaults induced by high cost of living and renters’ shrinking disposable income.
Nigeria has one of the most active rental markets in the world, with about 80 percent of its 200 million population living in rented accommodation, according to a Pison Housing Company report on ‘The State of Real Estate Market in Nigeria,’ which notes that these renters spend over 50 percent of their income on house rents.
The most affected are office buildings, malls, grocery stores, low, high-rise and other types of residential buildings in major cities of Lagos, Abuja and Port Harcourt. Some of them are considering eviction moratorium for small businesses, commercial and residential tenants while some tenants are already facing outright evictions.
A landlord at Idimu, Joseph Ajayi in a Lagos suburb, blamed the Lagos State Tenancy Law for landlords’ woes in the state, stating that, he is getting frustrated with mounting rent defaults in his properties, and ‘this is why I am considering quitting the tenants and selling off those properties.’
Ajayi explained that the law does not help property owners to recover their properties from defaulting tenants, noting that the process has loopholes. “Due to of this, we have cases of tenants living in your property for a year and six months without paying rents and one day they just wake up and leave with the unpaid rents,” he lamented.
A realtor and Estate manager, Ayo Olotu noted that, new investments are no longer going into the buy-to-let market in spite of its large size, pointing out that, Nigerians are generally in dire situation, battling high energy costs, transport fares for short commutes to offices and business premises, rising school fees, among others.
Estate Surveyor, Olurogba Orimolade noted that, “the high renting population in the country, ordinarily, means an attractive opportunity for investors, but that is no longer the case as rent defaults have been on the rise as a result of the bad economic situation in the country,”
According to him, “the default rate is high. “Rents are high and economic circumstances are tough with many families finding it difficult to feed.
“Rents have gone up significantly and so, if you developed your property 10 years ago, you would be fine, but developing today for investment is a huge challenge and it is difficult to earn good income in the present economic environment.
“About 80 per cent of all properties under my care have defaulting tenants who were previously meeting up their obligations. Some sectors, including oil and gas, that were hitherto known to offer job security are among the worst hit lately.”
Estate surveyor and valuer, Oloruntoba Oke explained to LEADERSHIP in an interview that, given the kind of judicial system in Nigeria, where cases can drag for more than 10 years, tenants can evade rents and go scot-free.
On his part, managing director, Daniel Ford International, Yemi Edun noted that, ‘Rental income of most properties is five percent of market value of the property, which gives a minimum of 20-30 years to recoup investment through rent.’
He stressed that, “low occupancy and cost of repairing and renovating the property every five years or risk of having no tenants push investment recovery periods up to as high as 30-50 years.”
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