The Effect of Recession on Property Management Practice in Nigeria

Property management is an act of inter-mediation between owners and occupiers on issues affecting the parties arising from ownership and occupation of buildings.

It is a conscious process of guiding and tailoring an investment in land into profitable venture. Its main concern is the optimization of the owners’ investment.

On the other hand, an economy is said to be recessed when it has faced a negative economic growth for two consecutive quarters.

An economy in recession faces a business cycle contraction which results in general slowdown in economic activities. A state where the macroeconomic indicators, such as GDP (Gross Domestic Product), Investment Spending, Capacity Utilization, Household Income, Business Profits fall; while Bankruptcies and Unemployment Rate rise.

Recession generally occurs when there is a widespread drop in spending (an adverse demand shock). This also may be triggered by various other events like financial crisis, an external trade shock, an adverse supply shock or the bursting of an economic bubble. While an economy is said to be in recession if it passes through a stage of negative growth for two quarters consecutively, a severe GDP down by 10% or a persistence of recession for three to four years will result in Economic Depression, although some argue that their causes and cures may be different.

Nigeria entered into recession in the third quarter of 2016. Generally, as said earlier, when a country is in recession, there is scarcity in the flow of money in the economy, resulting to low spending which is what Nigeria is passing through today.

Landlords cry of no money because tenants are not able to meet up with their demands and tenants do same too, because of shortage in their income flow. So you see that the recession is affecting both buyers and sellers (in our context, landlords and tenants) in the economy.

It is not just about what you have to offer. The question is ‘how many are able to pay for what you have to offer?’ These and many others to mention are the problems faced in the economy in the practice of Property Management.

However, to highlight but a few are the following:

• High Cost of Maintenance – Because of the low income flow in the economy compared with previous times, landlords are not able to meet up with the maintenance needs of their properties. They have other more pressing needs to satisfy such as foods, education e.tc.

And so they are forced to cut down the amount they usually employ in maintaining their properties, be it residential, commercial, industrial or otherwise. Therefore, the maintenance function of a Property manager is affected.

• Difficulty in Rent Collection – Tenants who occupy these properties in the market are also in the economy which is recessed, meaning they also are facing downturns in their own individual income flows. Tenants are no longer capable of meeting their rental obligations. Their salaries/incomes are no longer enough to cater for their numerous needs due to increase in the prices of consumables and other commodities without a corresponding increase in income. To make matters worse, some tenants have been laid off from their jobs, thereby making it difficult to meet up with their rental obligations.

With so many things such as food items, tuition fees etc, competing for tenants’ income, rent payment are delayed, if paid at all. The Property Manager therefore finds it difficult to collect rents as he always receives pleas upon pleas of “I will pay tomorrow or next” which many landlords are not ready to entertain.

• A Lot of Court Cases on Property Matters – Cases of landlords and tenants in courts are more rampant today than in previous times. Tenants are not able to pay their rents for long and landlords cannot bear it so they take it to court. And so the courts are always having cases of landlords against tenants or tenants against landlords to judge.
• Tenants Breach Tenancy Agreement on Termination – Many tenants fail to fulfill their obligations, as stated in the tenancy agreement, when vacating the properties, they occupied. They now have to pay more to maintain the reasonable standard of living they had in the past, though they have more needs to meet than before, some will of course have to compromise in their faithfulness.

Nigeria entered into recession in the third quarter of 2016. Generally, as said earlier, when a country is in recession, there is scarcity in the flow of money in the economy, resulting to low spending which is what Nigeria is passing through today.

Landlords cry of no money because tenants are not able to meet up with their demands and tenants do same too, because of shortage in their income flow. So you see that the recession is affecting both buyers and sellers (in our context, landlords and tenants) in the economy. It is not just about what you have to offer. The question is ‘how many are able to pay for what you have to offer?’ These and many others to mention are the problems faced in the economy in the practice of Property Management. However, to highlight but a few are the following:

• High Cost of Maintenance – Because of the low income flow in the economy compared with previous times, landlords are not able to meet up with the maintenance needs of their properties. They have other more pressing needs to satisfy such as foods, education e.tc. And so they are forced to cut down the amount they usually employ in maintaining their properties, be it residential, commercial, industrial or otherwise. Therefore, the maintenance function of a Property manager is affected.
• Difficulty in Rent Collection – Tenants who occupy these properties in the market are also in the economy which is recessed, meaning they also are facing downturns in their own individual income flows. Tenants are no longer capable of meeting their rental obligations. Their salaries/incomes are no longer enough to cater for their numerous needs due to increase in the prices of consumables and other commodities without a corresponding increase in income.

To make matters worse, some tenants have been laid off from their jobs, thereby making it difficult to meet up with their rental obligations. With so many things such as food items, tuition fees etc. competing for tenants’ income, rent payment are delayed, if paid at all.

The Property Manager therefore finds it difficult to collect rents as he always receives pleas upon pleas of “I will pay tomorrow or next” which many landlords are not ready to entertain.

• A Lot of Court Cases on Property Matters – Cases of landlords and tenants in courts are more rampant today than in previous times. Tenants are not able to pay their rents for long and landlords cannot bear it, so they take it to court. And so the courts are always having cases of landlords against tenants or tenants against landlords to judge.
• Tenants Breach Tenancy Agreement on Termination – Many tenants fail to fulfil their obligations, as stated in the tenancy agreement, when vacating the properties they occupied. They now have to pay more to maintain the reasonable standard of living they had in the past, though they have more needs to meet than before, some will of course have to compromise in their faithfulness. Therefore, when, for example, the tenancy agreement states that tenants are to paint the property and return it to a good state of repair before vacating the property, you have tenants absconding without doing so because of the fear of spending in excess to do so.
• Pressure on Property Managers – Because of tenants’ inability to pay, Property Managers are put under pressure by landlords who will always shout “I don’t care! All I want is my money.” While Property Managers who are professionally trained will bear with tenants’ inability to pay in this period, most landlords are not that patient. And so practitioners in the field are put under intense pressure to meet landlords’ demands.
• Landlords Default to Financiers – In cases where a landlord collects a loan in order to invest in his property, and he fails to meet up with his obligations to the financial institution due to inability to realise his money from the tenants who have been unable to pay, he may be left with no choice than to disappear as he has no other means of getting money to pay his financiers.
• Evasion of Tax by Landlords – Ground rents and other property taxes are not willingly paid this period except under duress from the tax authorities.
• Reductions in Landlords’ rental expectation – Landlords have been forced to review their rents downward as a result of the recession in the economy. As much as Landlords would want to receive the highest rent possible on their properties in order to break-even quickly, economic recession has left them with no other choice but to reduce the rent charged on their properties so as to ensure consistency in their stream of income.

Cases abound in high-brow areas of Abuja, Lagos and even Jos where rents have come down. Property owners who fail to review their rent downward see tenants vacate their properties in a bid to look for properties with relatively low rent or in worst case scenario tenants hold over.

This will result in property owners having to spend a lot of money to seek legal redress and recover vacant possession of their properties as well as unpaid rents. Rent reduction has been considered the best option in ensuring constant and timely remuneration to Landlord.

• Low Demand for Properties by Tenants – There has been a drastic fall in the demand for properties as a result of the recession in the economy. This is chiefly due to the fact that people’s incomes are no longer considered sufficient to meet their needs. The cost of living has increased yet income has either reduced or remained unchanged. And so, the demand for certain property types have reduced. Families who lived in 3 bedroom bungalows now have to move to smaller spaces in other to cut down cost.
• Tenants’ Inability to Carryout Little Repairs – In time past, tenants usually carry out little repairs and maintenance works (such as fixing bad door handles, painting and so on) on the property they occupy. This is no longer the case, as tenants leave all maintenance work to the Landlord who is only interested in collecting his rent.

As soon as rents are paid, the Landlord turns deaf ears to the pleas of the tenants as regards maintenance. So, the property is left in a bad state of maintenance and tenants mount great pressure on the Estate Surveyor who is managing such property.

• Ineffectiveness in Routine Property Check by Property Managers – The advent of economic recession has also reduced the frequency of routine inspections carried out by Estate Surveyors. Since reduction in the rent charged by Landlords means a reduction in the commission due to Estate Surveyors, they in turn need to cut down the number of visits to properties in order to balance the books and smoothly run their firm’s day-to-day activities.

As a result, Surveyors may not notice defects in the property early enough to carry out preventive maintenance which would have been more economical.

• High Cost of Construction/ Vacancies in Properties – The cost of construction has also increased due to the increase in the cost of procuring building materials. Landlords now put pressure on Estate Surveyors to let their properties at a rent they (Landlord) feel would enable them recoup their investment as soon as possible.

These rents are sometimes too high and do not reflect the prevailing economic situation. As a result, such properties end up vacant with no one willing to take them.

Landlords are advised to review their rents downward to enable tenants pay up as at when due. As much as they would love to break-even as soon as possible, it is better to have a relatively small but constant stream of income than one that is neither constant nor timely.

Estate Surveyors are advised to structure their routine visits to the properties under their management in order to optimize costs. They could also have a “caretaker” amongst tenants who could call their attention to issues that requires their attention whenever such arises.

The prices of building materials should be reduced by enhancing/encouraging the production of these materials in both private and public levels within the country.

In addition to creating job opportunities by establishing skill acquisition centres where the production of building materials is taught, government should also sponsor people outside the country to learn the production of these materials in a more industrialized and technological way and come back to the country to establish factories producing these materials.

Seeing that rents are reviewed by landlords regularly, but tenants’ income remain the same, government should also review (increase) workers’ salaries on a regular basis to enable tenants pay rent without stretching their pockets too much.

Furthermore, the government should make access to land easier. This will enable/encourage developers of land who would want to occupy or build income producing properties. If processing land title is easier and less time consuming than it is in Nigeria today, it will reduce the overall cost of producing properties, which in turn positively affect rents in the market.

In line with this, state governments across the country should make conscious efforts in curbing land speculation by greedy citizens.

Also, if government can enact and implement fair, effective and sustainable housing policies/scheme in every state of the federation to enable citizens live in comfortable and affordable houses as is the case in the United Kingdom and the United States, it will help eradicate the problems of housing.