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Neighbourhood and Infrastructure as determinants of Rental value

Real estate has no value if it has no utility, if it is not scarce and if it is not effectively demanded. Real estate has significance only as it satisfies man’s needs and desires. It is this man’s collective desire for property that gives rise to value. Thus, the ability of a property to satisfy man’s needs and desires together with its degree of scarcity and utility compared with others makes man to ascribe value to it.

Rental value, therefore is the money obtainable from a person willing and able to occupy a property for a specific period of time or on a temporary basis when it is put up for lease by a willing property owner, allowing for reasonable time for negotiation and with the full knowledge of the nature and uses which the property is capable of being put.

Real estate is a heterogeneous good that is comprised of a bundle of unique characteristics reflecting not only its location, but equally affected by other amenities such as the quality of neighbourhood and infrastructure. Location is a major determinant of rental value.

Location is important in relation to proximity to the target market and sources of supplies; conditions and facilities are important in relation to attracting optimal rentals, and security is important in relation to tenants’ and visitors’ safety. There are seven factors affecting rental value, these are; population (increase or decrease), changes in fashion and taste, institutional factors (these are factors relating to people’s culture, religious belief and government action), technological factors, economic factors, location and complementary uses. The major considerations for property value hinge on the property’s ability to produce income, be in demand and have a good location relative to its use. Other determinants of rental/property value include scarcity, prospect of income growth, state of the economy, cost in use, government and political factors, physical attributes and taxation. There has been a growing concern about government’s lackadaisical attitude towards infrastructural development as there has been little or no focus to the effects of infrastructure on rental values yet infrastructure is one of the utmost determinants of property value, the presence of which leads to appreciation in property values. Its absence affects neigbourhood properties adversely. The provision of good and adequate infrastructure is central to property value.

Residential users may be prepared to pay a high value for a property depending on his consideration for basic facilities such as accessibility, water and electricity. Basic facilities such as access roads, good drainage, electricity, public water supply and telephone attract high property values. Accessibility which is a direct consequence of a good road network, in turn leads to high rental values of locations with greatest accessibility advantages. In a situation where all properties are accessible via motorable road network, such properties will enjoy high rental values conferred by virtue of accessibility.

Hence, properties in areas that are well serviced with pipe-borne water no doubt enjoy higher rental values compared to areas where the service is non-existence.
Other important determinants of property values are provision of good communication network, electricity and drainage. Adequate infrastructure reduces the cost of production, which in turn affects profitability, level of output and employment; particularly in small-scale businesses, it is common knowledge that when infrastructure works, productivity and labor increase; when it does not work, economic renewal can be postponed or even halted. Unfortunately, the level of availability of infrastructure in most developing countries is drastically low which calls for concern particularly on the part of the government at all levels. It is generally believed that provision of infrastructure in residential property would continue to attract prospective tenants and therefore increase rental values

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