House rent in Nigeria is above the 30 per cent of the annual personal income recommended by the United Nations (UN). With an estimated deficit of 17 million units, housing remains a major challenge. Yet, several buildings are unoccupied, resulting in a glut in certain areas. MUYIWA LUCAS writes that stakeholders are calling for tax imposition on buildings that are unoccupied for more than six months.
On the walls of several new and renovated buildings in Lekki and on Victoria Island, hang weather-beaten inscriptions: “To Let /Lease, contact….” The same sign posts are displayed in Magodo, Ajah and Ikeja GRA. The densely populated areas on Lagos mainland axis of Ebute-Metta, Yaba, Iyana and Ikeja are no exceptions.
The situation is the same in other city centres such as Port Harcourt, Rivers State and Asokoro, Maitama, Garki, Wuse, districts in Abuja, the Federal Capital Territory (FCT). Not a few houses have been unoccupied for more than two years in some areas.
The development is attributed to several reasons. One of such is the high cost of rent placed on the vacant structures. For instance, in the middle-class areas, such as Surulere and Ikeja (excluding the GRA), a potential tenant will have to pay between N500, 000 and N1 million for a two-bedroom apartment or a three-bedroom flat.
It is a fortune in Abuja main city as a prospective tenant needs between N2.5 million and N3 million annually to rent a two-bed apartment within the FCT. In such areas like Lugbe, Karu, Kubwa and other satellite towns in the FCT, a two-bedroom apartment attracts a yearly rent of between N400, 000 and N700, 000.
In the oil rich city of Port Harcourt and depending on the location of the property, a one-bedroom flat attracts a yearly rent as high as between N250, 000 and N350, 000; a two-bedroom flat goes for between N400, 000 and N650, 000 and a three-bedroom flat and four-bedroom bungalow will attract between N800, 000 and N1.3 million per annum.
On Victoria Island, a prestigious real estate destination on Lekki peninsula, Lagos State, the story is the same. This is despite the fact that the axis enjoys proximity to the Atlantic Ocean and Lagos Lagoon, which makes it attractive to the high and the mighty in the society.
An exquisitely-furnished four-bedroom penthouse for rent on Victoria Island is available for N24 million per year and in lower options, a self-contained apartment at Oniru Estate, an extension of Victoria Island, goes for N450,000 yearly. Within the Victoria Island/Ikoyi axis, there are commercial spaces that attract yearly rent as high as $1,100 per square metre and residential apartments that attract yearly rent above $130,000. Such accommodations are at the Maersk Building and the Ocean Parade apartments for commercial and residential tenants.
For instance, a 10-storey luxury apartment being managed by an expatriate off Kofo Abayomi, Victoria Island, was advertised for a short time lease at N2.5 million and an outright sale at about N250 million, but, a year after, the building is less than 50 per cent occupied. The building is located directly opposite a military formation and flanked on the side by a transnational bank.
In times past, owning a property or living on Victoria Island used to be s status symbol for the super rich. However, the fortunes of the highbrow area seem to have nosedived. A lot of buildings are unoccupied in the area. A walk around Victoria Island and Ikoyi will portray the reality of vacant flats and buildings begging for tenants. The properties, though tastefully finished and fitted with top-of-the range facilities and services, they have not been able to attract tenants.
Nigerian Institution of Estate Surveyors and Valuers’ (NIESV) Second Vice President Rowland Abonta confirmed the high rate of unoccupied houses across the country.
Abonta said: “There are quite a number of vacant houses around but the rent is high. Many of these houses are built by very rich people who didn’t suffer much for the money and so when they build the houses and fix the prices, they can afford to lock up the houses if people don’t rent them due to the high cost they place on their property.”
It was learnt that the policy of the Central Bank of Nigeria (CBN) on cash transaction limit which has made it impossible to lodge certain amount of money without alerting anti-corruption agencies, is forcing many money bags with questionable sources of income to invest in property using pseudo names. They eventually place high rent on these houses to scare tenants all in a bid to hide their identities.
A property developer, Mr. Kayode Oyedele, confirmed the high vacancy rate on Victoria Island. Oyedele, who is the Managing Director, Imole Ayo Properties, told The Nation that more properties are becoming vacant in the highbrow areas of Victoria Island and Lekki, where the “To Let” inscriptions are on many houses.
According to him, most of the properties are over-priced by their owners – making it impossible for them to be sold or let out quickly.
“Even houses which do not have competitive facilities or services are prized so high. I will advise that developers should become more realistic and also work in tandem with current economic realities to beat the property glut,” he said.
Oyedele’s position is line with the United Nations (UN) recommendation. The UN stipulation is that workers should spend more than 30 per cent of their income on rent. When this threshold is exceeded, then such an apartment is not meant for the person renting it because other needs for his existence would be adversely affected.
“Based on this, if a person earns N2 million per annum, do you expect such a person to spend N1.5 million annually on rent?” he asked rhetorically.
Yet, others blame the soaring rent on Ikoyi and Victoria Island properties of infrastructure collapse. They argue that government has not matched investment in infrastructure despite the huge taxes being generated from the area.
Said an estate manager: “By the time you take away the main arterial roads – Awolowo Road, Bourdillon, Adetokunbo Ademola, there is nothing you can trace as active acknowledgement and contribution of government of upgrading this environment where the majority of her tax income spinners work and live.
“Eighty per cent of the banks have their headquarters here. Yet, they benefit next to nothing as against the volume of what they contribute. The bulk of Land Use Charge (LUC) is actually generated from this axis. Yet, the bulk of the roads are still what they were prior to the introduction of LUC.”
Adediji, who is a Principal Partner at Messrs Bode Adedeji and Co. a real estate consulting firm on Victoria Island, Lagos, blamed the rising number of unoccupied buildings on the absence of the middle class in Nigeria.
According to him, the luxury apartments were not built for the low-income earners, but for the upper middle-income group, which the economy does not support at the moment.
He said: “Therefore, once the economy does not support the growth of that income bracket, then, we are only building speculatively.
“Therefore, in terms of the prevailing indices, especially economy, the volume of demand could not justify the massive influx of luxury apartments into premium locations.This translate that many of such buildings will remain unoccupied except their rents are appropriately reviewed.”
An architect, Mr. Richard Ibilola, observed that Victoria Island was originally designed as an upscale residential area, but had its originality altered due to failing infrastructure and overcrowding in the old business district on Lagos Island and tax zoning enforcement on Victoria Island, which led to a mass migration of businesses over the last 25 years.
He described as regrettable the influx of banks and other ventures that have changed the hitherto serene atmosphere of the area.
Those who staked their live-savings to acquire properties have been complaining about the increase in traffic and influx of street traders, who cater to bank employees and businessmen.
A proposal by businessman Chief Sunny Odogwu to build a five-star plus hotel in Ikoyi was shot down in 2012 by some powerful elite under the Victoria Island and Ikoyi Residents Association (VIIRA). The residents argued that such facility would among to an invasion of their privacy.
Although Ibilola argued that the conversion of Victoria Island from a residential area to commercial has nothing to do with the number of unoccupied buildings that now adorn the area, he, however, blamed government for refusing to plan ahead.
“As you witness changes, you have to re-examine your plans to conform. For instance, it is the inability of Nigerians to create highly-designated and controlled commercial precincts that make people to convert their residential places to commercial use. On Victoria Island, there is a Central Business District (CBD), but it is just about one square kilometre; they never envisaged the volume of growth in business around the area,” Ibilola, an architect said.
To the Lagos State chapter Chairman of the Nigerian Institute of Estate Surveyors & Valuers (NIESV), Mr Sam Ukpong, there is a glut in the real estate market arising from interplay of demand and supply.
He said many houses have been supplied to the market without effective demand. He explained that many years ago, when the Federal Government sold its properties in Ikoyi, most of the buildings had large expanses of land with single occupants, which its new buyers converted to storey buildings for multiple prospective tenants.
According to Ukpong, the demand for the properties is not as high as supply – thus, leading to a glut. Besides, he explained the shrinking disposable income of individuals and companies have not helped matters.
The NIESV chief also blamed the development on the failure to build functional houses. For instance, he said that some developers build wrongly, by either not having a kitchen or sitting room big enough for tenants’ need.
“So, when the people inspect such buildings, they are not usually satisfied with them. The developers of these houses, most times, lack construction knowledge or trends in housing development and build what will not easily be taken up by tenants,” he explained.
With potential tenants getting wiser, and trying to avoid shylock landlords, more houses may remain unoccupied for a much longer time.
Mr. Ladi Ogunsanya, a civil servant, said he had to vacate his N350, 000 per annum two-bedroom apartment in Akute area and moved into a N270, 000 three-bedroom apartment within the same axis. Since he moved almost a year ago, his former apartment has remained unoccupied due to the high cost.
This wisdom is seen in the movement of some residents from the upscale areas to places, like Gbagada and Ilupeju from where the former residents of those middle-class apartments have since relocated to Ogba, Agege Ofada, Shimawa, Magboro and Mowe/Ibafo communities in Ogun State.
The belief is that it is better to live in one’s property even if located on the outskirts and with all attendant challenges, than paying fortunes to rent a house within the city.
Sunday Kehinde, an automobile mechanic in Saabo, Ojodu-Berger, a Lagos suburb in Ogun State, is exhibiting such wisdom. He told The Nation that he was forced to move in to his uncompleted property about four years ago following indiscriminate increase of rent by his landlord.
For him, paying such rent made no sense when he can comfortably save such money and build a house for himself.
“I used to live in a room one room apartment before. But my landlord increased rent to N5, 000 per month. After the first year of paying the increment, I decided to move into my house in Mowe; so I rushed up the construction of two rooms on my land. Today, I thank God that my bungalow has been completed and I am free from shylock landlords,” Kehinde said.
Oyedele descried that the property glut as a reflection of dwindling economy, explaining that the development has forced landlords to obey a section of the Lagos State tenancy law which stipulates a maximum collection of one year rent advance.
“When that law was enacted, landlords flagrantly disobeyed it. Today, no landlord needs to be told that there’s no money in the economy; hence, they simply ask for one year advance rent because they also need money,” he said.
It remains a paradox that unoccupied buildings are on the upswing in many cities even in the face of the rising number of homeless Nigerians.
The President of Real Estate Developer Association of Nigeria (REDAN), Mr. Olabode Afolayan, blamed the trend on the process of acquiring land; the cost of capital and raw material as responsible for this.
He traced that provision of services like roads, water and recreation facilities for the high accommodation fees.
However, Afolayan cautioned that instead of looking up to government for solutions, developers can look inward for cheaper alternative building materials without compromising standards and quality to reduce cost.
His views were corroborated by the managing director of Interstate Architects Limited, Mr. Olusegun Ladega, who said that the real estate sector has always been the first casualty of economic downturn.
He said: “This is because the sector is a highly capital intensive one. Construction has never been cheap. So, when the economy gets bad, the people will naturally make some form of adjustments in order to suit their pockets. It may interest you to know that the real estate sector had for long been feeling the heat of the downward trend in the economy, except that it got more pronounced this year as a result of the drastic fall in the value of the local currency- the naira.”
With a huge housing deficit, can Nigeria afford to have buildings unoccupied?
Stakeholders and real estate managers believe that lack of property tax regime or its implementation, as well as the enforcement of rent edit, contribute to the rising wave vacant properties in major cities.
They argue that property tax will checkmate greedy developers and alleviate the sufferings of tenants, who can’t afford the high cost of accommodation being demanded. The introduction of and enforcement of property tax will compel owners of more than two houses and owners of houses that are unoccupied for upwards of six months, would be made to pay higher tax on such properties, will not be out of place, the stakeholders say.
Supporting the position, a real estate lawyer, Rotimi Jaiyesimi, believes that the imposition of special levies on vacant properties as obtained in developed economies would check property speculation and arbitrariness.
The measure, known as “the fee structure,” is a motivation for property owners to realistically pursue the sale of the building or find a productive use for it by possibly dropping the price at which it can be rented out or sold.
Jaiyesimi said: “In developed societies, there are laws that force owners of vacant or unoccupied buildings for over 90 days to register them, and fees are imposed after the first one year, at $500 a year, and increased to $5,000 a year after 10 years.”
This, he said, will discourage property owners from keeping their buildings in the city vacant and unproductive.
Abonta says the imposition of taxes on properties that are vacant for years would force their owners to reduce the cost of rent to attract tenants.
“They should be able to pay government such taxes and this could be used to put pressure on them to rent out the houses,” he said.
Though aware and concerned about the trend, the government is handicapped to arresting the situation because of capitalist nature of the economy.
A report in a national daily has it that the Federal Capital Territory Administration (FCTA) claims to have mapped out measures to check the activities of owners of housing estates that remained unoccupied for more than six months after completion.
Quoting Mr. Dominic Odenigbo, Head of Aesthetics and Amenities, Department of Development Control of FCTA, the FCTA said that some owners of such unoccupied estates were not eager to allow tenants into their houses and estates because their sources of funds could be questionable.
Odenigbo said: “Part of our condition for granting building approval is for construction to commence not later than six months after approval and completed, at most, two years after. But we have observed that several of the houses in the city and in some mass housing estates are not occupied for several years after construction and that is not acceptable.
“Some builders acquire these structures as a way to tie down illegally acquired wealth so, they might not be eager to rent them out. To stop this trend, we plan to include a clause in the approval that would compel builders to rent or occupy such houses not later than six months after completion.”
Unless the trend is curtailed, predictions that the real estate sector will hit $13.6 billion this year in terms of business drive and account for 7.6 per cent of the Gross Domestic Product (GDP) may be a tall dream.
Stakeholders are canvassing for a timely intervention to reverse this trend, especially given that vacant buildings constitute public safety hazard. Building experts also agree that buildings that are left unoccupied for several years run the risk of depreciating.
Source: The Nation