Property management is an integral part of real estate that shouldn’t be taken with a pinch of salt. For this reason I am devoting this time and space allotted to me on this platform to discuss and share my thoughts and experiences on the management of properties as it is been practiced in Nigeria and other parts of the world.
In view of this, we had an issue with a client who saddled us with the responsibility of managing his property. Things got ugly when he had a problem with a tenant and in response he was going to evict the said tenant. Albeit the crux of the matter was his decision to make us bear the cost of eviction since the tenant came in through us.
Invariably the cost of eviction regardless of the process; be it at the level of litigation or engaging a lawyer to effect his cause was to be incurred. I understand this is the norm in the society he emanated from having spent quality time in the United Kingdom. Nonetheless this was a far cry from what is obtainable in Nigeria and was too much of a challenge for a Nigerian agent to contend with. We had to redirect his searchlight and brought to his notice that it wasn’t a system that worked in our domain due to the fact that we only get our percentage profit specifically from the management of properties. As duly suspected the client challenged us to raise the bar in our practices and mode of service delivery if we were to attract more customers. He cited an example of the management of properties as its done in the United Kingdom where he’s based. He was quite blunt with us while making it clear that an agent is solely responsible for such cost and should be able to recover money expended during the eviction process from the tenant.
However, the issue at hand that came under his critical analysis is an issue beyond an organization. It has to be addressed holistically. The system must be ready for such practices because in Nigeria it is difficult to ordinarily recover rent in arrears from a tenant you’ve had a running battle with and has been successfully evicted, how much more been able to recoup the money you injected into litigation and prosecuting his eviction in the court of law.
Bringing the aforementioned premise in retrospect you might begin to wish our system could work as effective as it is in some developed parts of the world. I saw the picture the client painted as indeed a call to order while I assured him that though it may seem rather difficult within our system, it is not impossible for advocacy for such better organized environment to evolve. This is necessary to encourage investors.
Truth be told, very few people are interested in investing in properties that will fetch them an annual or biennial stipend in form of rent as the case may be. This is typical among middle-low income earner and is widely viewed as an arduous venture because the return on investment is not anywhere close to encouraging. The factors stated below hampers investments in rental property market;
1. High cost of construction
2. High cost of Land
3. A lengthened time to recoup money invested on property
4. Rental income comes in trickles therefore it takes many years to break even
The bulk of the challenges faced by would be investors springs from the amount of time it takes to recoup money laid on the altar of investments. For instance if you invest N30 million to erect a structure that is to be put up for rent and you are able to get N400 thousand per flats for a block of four flats. The total returns will amount to N1.6million per annum. If you tarry along this way without any further reviews on the property and rent then it simply means that expectedly it will take more than 18 years before you can recoup the money invested on the property and possibly break even afterwards.
Taking a critical look at the afore-mentioned scenario which surely doesn’t look attractive; if it takes 18 years to just recoup money expended on the property then it doesn’t account for a good investment.
Therefore a lot of developers will develop and sell a property rather than withhold it for rental purposes so as to strike a balance, improve cash flow and perfect a strategic growth plan. And that’s why construction activities for rental purpose takes place more at the luxury end; shop letting, hotels and the likes of them where the investors know they can get more returns on investments. Even the people who are in search for properties to rent do so because they know its not so attractive for letting.
However if the rental income is better or the cost of production is reduced it can get attractive as it ought to; 10-12 years to recoup money invested won’t be such a bad idea, don’t you think?
Regardless, our system and structure still need to be worked upon even when the return on investments becomes attractive for business. Yes! The law is usually in favour of the tenant anywhere in the world except that place is out of the world, so is it for the landlord when the tenant errs and goes contrary to the contractual agreement reached by both parties. It’s a two way thing only that its more supportive of the rights of the tenant and that’s if the tenant is fighting a just cause.
Worse still, in this part of the world it is quite difficult to get your rent from a tenant that has defaulted. Some troublesome tenants rent a place with the mind set of playing on the intelligence of the property owner after the first year or at the expiration of their rent. They pay whatever money that is being requested and when they enter they wait for the expiration of their rent to forment trouble. Some of such cases drag in court for 2-3 years during which the tenant continues to live in that apartment without paying rent for it until they finally abandon the case and vacate the property. While others wait till the case goes to court and then suddenly go ‘AWOL’. Often times, the said tenant had a grand plan prior to the expiration of his rent being fully aware of the provisions of the law; mere whims and caprices.
There was even a case of a lady who vacated a premises and fled with a year’s rent after much tussle with the property owner. It was later discovered that all the while she stayed in that building she was working on her own property. So it was only a ploy to use the money she would have paid the landlord to complete her property and subsequently move into it leaving the property owner and all involved in the case to their own devices.
These are some of the cases that have made the rental property market unattractive and has discouraged people from investing.
There was also a case of an investor who converted a building meant for residential rental purposes to commercial purposes in form of shop letting. He believes people value their businesses and so won’t want to joke with their rents unlike those that are strictly for residential purposes which markedly is a hard nut to crack.
Also, if our Judiciary system is not so supportive as regards a property owner reclaiming money owed from residential rental property business then we could have the numbers reducing further.
As it is we can only advocate which I have somewhat done in way by coming up with this piece.
More so, I will urge professionals who are of like minds to continue to push the frontiers of good governance, professionalism, real estate practices, a fair and upbeat Justice system and of course a healthy business environment. This will guard against a situation that could arise if the issues pointed out in this article are not addressed; where a lot of people would keep searching for properties to let and yet can’t find.
MD/CEO Realty Point Ltd