High interest rate charged by lenders on housing loans and the short period of repaying such loans have been fingered for the advance house rent demanded by landlords and/or property owners from prospective and even sitting tenants.
Advance house rent payment is a ‘new normal’ in the Nigerian property market wherein landlords and property owners demand two to three years house rent from tenants, mainly workers, who are paid salaries on monthly basis and most times in arears.
Babatunde Fashola, power, works and housing minister, has, on many occasions, faulted this demand and tasked both property owners and professional estate agents to address the problem, considering the economic realities and the income level of the tenants who pay the rents.
But the estate agents reason differently, looking at the economic and market fundamentals. “Rent is determined by demand and supply rule. It is a function of economics and we cannot run away from it,” says Oluyinka Sonaike, an estate surveyor and valuer. He argues, “If you increase housing supply in the market, the prices will go down. But if the demand outweighs supply, unless you start doing rent control, you cannot regulate it.”
Sonaike notes in an interview with Business Day that the issue of advance rent has to do with the pressure on the developer to pay back the loan facility he has taken to do his project. “On the average, when you take a loan from either banks or any financial institutions, they give you between five to six years to refund the money with interest. There is no way you can make that money within the payback period and the interest rate at the moment is ridiculous,” he points out.
Ordinarily, he says, payback time for mortgage loans should be 20 to 25 years so that it will be convenient for the borrower, but that is not the case. He added that, in order to cushion the effect of interest on the money borrowed, the developer demands for three years rent in advance.
Sonaike is of the view that, to tackle the issue of rent, a lot of factors must be considered, saying, “I remember the minister mentioned the poor who receive their salary on monthly basis in arrears. But to address that segment of the population, we should be considering social housing. Social housing is not profit-oriented; it is meant for the poor. When this is done, the government would have taken care of that class of people.”
He does not see private developers do any social housing because they are profit-oriented. He believes that social housing is government’s responsibility to the poor and so, if the government can take care of that class of people, private developers can focus on the middle and the high class of the population.
“Some years back, landlords in Ikoyi were asking for rents in dollars and they were getting it. But since the economic meltdown, even with the reduction in dollar in naira equivalent, you still have a lot of houses vacant within Ikoyi and Victoria Island corridor,” he notes.
He advises further that to checkmate advance or high rent issue, there should be a combination of solutions including reduction in interest rates and provision of social and mass housing for the poor. “Until the government takes bold steps to address these issues, the problem of huge housing gap will persist,” he insists.
BY CHUKA UROKO