Project – An examination of vacancy rate on some selected residential properties

CHAPTER ONE

1.0   INTRODUCTION

A vacancy rate serves as an important indicator of the health of a real estate market. But we cannot draw sound inferences about a market just by observing the rate alone because many factors contribute to a vacancy rate. The same rate may tell different stories, and different rates may tell the same story (Ighalo, 2002). According to Ighalo (2002), the vacancy rate is the percentage of all available units in a rental property, such as apartments, complex, that are vacant or unoccupied at a particular time. It is the opposite of the occupancy rate, which is the percentage of units in a rental property that are occupied. High vacancy rates indicate that a property is not renting well while low vacancy rates can point to strong rental sales.

Chinloy(2006) opines that the vacancy rate is calculated by taking the number of vacant units, multiplying that number by 100, and dividing that result by the total number of units. The vacancy rate and occupancy rate should add up to 100%.

In real estate, the vacancy rate most often represents units that are vacant and ready to be rented, units that have been turned off upon the exit of a tenant, and units that are not currently rentable because they are in need of repairs or renovations. A property owner can use vacancy rates as a metric for analysis. Changes in the percentage of vacant units versus occupied units, the length of time occupied units are remaining active, or other rental conditions can provide guidance regarding how competitive a property owner has made the property. If a property owner is charging significantly more or less than the rest of the rental market, this may be reflected in the overall vacancy rates. It can also provide information regarding the effects of price changes or advertising on unit occupancy (Chinloy, 2006).

While vacancy rates are commonly used to assess an individual property’s performance, such as a hotel monitoring its nightly vacancy rate, aggregate vacancy rates are also used as economic indicators of a real estate market’s overall health.

Housing markets are often modeled as a series of separate but related submarkets, with differing supply and demand conditions in each. In the case of a rental market, there may be separate submarkets for different apartment types (one-bedroom, two-bedroom, etc.), and for different geographic locations. If submarkets exist, it is possible that natural vacancy rates will vary by submarket. In that case, information on natural vacancy rates is made more useful if available at the submarket level (McCartney, 2012).

Empirical support for the existence of a natural vacancy rate in rental housing dates back to Smith (1974). Since then, a number of studies have focused on variations in the natural rate across both space and time. It is on this basis that this study examines the vacancies rate on residential properties in Ombi 1 of Lafia Metropolis.

1.1   STATEMENT OF THE PROBLEM

The rental vacancy rate is the fraction of rental properties not rented at a point in time. This captures pressures in the rental market. It matters for understanding the balance between supply and demand, future pressures on rental prices and the typical duration of vacancy for a landlord’s budgeting purposes. The relationship between the vacancy rate and the housing production rate is expected to be negative as well. If the vacancy rate is high, the supply of dwellings will be higher than the demand for dwellings, which means that the house prices are stable or decreasing. Consequently, developers won’t have much stimulus to engage in housing starts and the housing production rate will be relatively low. This study seeks to examine the vacancy rate on some selected residential properties in Ombi 1 of Lafia Metropolis.

1.2   AIM AND OBJECTIVES OF THE STUDY

The aim of this study is to examine the vacancy rate on some selected residential properties in Ombi 1 of Lafia Metropolis.

The following objectives will be pursuit to achieve the aim of the study;

1. To ascertain the level of vacancy of these selected residential properties in Ombi 1 of Lafia Metropolis.
2. To identify the causes of vacancy of residential properties in Ombi 1 of Lafia Metropolis.
3. To examine the implication of vacancy on these selected properties.
4. To recommend possible solutions to the implication of vacancy of the selected residential properties in Ombi 1 of Lafia Metropolis.

1.3   RESEARCH QUESTIONS

The following questions shall be examined with a view to guide the researcher.

1. What is the level of the vacancy rate of the selected residential properties in Ombi 1 of Lafia Metropolis?
2. What are the causes of vacancy rate of residential properties in Ombi 1 of Lafia Metropolis?
3. How has the implication of vacancy rate affected the selected residential properties?

1.4   SCOPE AND LIMITATION OF THE STUDY

The scope of this study covers only the examination of vacancy rate on some selected residential properties in Ombi 1 of Lafia metropolis. It will be restricted only single rooms self contained in the study area. This implies that the population of the study will be limited to respondents from these selected properties in Ombi 1 of Lafia metropolis alone.

1.5   SIGNIFICANCE OF THE STUDY

The outcome of this research work will be of immense value to several interest groups namely; the academia, financial institutions, investors/investments analyst and public authorities.

The findings of this research “An examination of vacancies rate on residential properties in Ombi 1 of Lafia Metropolis” will serve as a guide for investors to be able to make reliable investment decision that will ensure high return on investment.

The result of this study will serve as a guide to other researchers who are interested in further research into the implication of vacancies rate on residential properties in Ombi 1 of Lafia Metropolis, Nasarawa State and Nigeria at large.

The findings and recommendations in this work will help the government in both policy formulation and execution on residential properties.

1.6   THE STUDY AREA

The Ombi Community is located in Lafia Local Government Area. It lies between Bukan-sidi community and College of Agriculture Ombi 2 community, separated by a stream shared by both communities and lies between latitude 8˚32’N and 8˚34’N of the equator and longitude 8˚30’E and 8˚34’E.

The community has inhabitants and settlers from different tribe and religion, but mostly occupied by the Eggon people. The community is said to be the host community of Isa Mustapha Agwai I Polytechnic and lots of residential properties and business ventures. The community which is currently headed by a village head called the Dakachi of Ombi 1, with many Mai-angwas assisting the village head.

The community has a stream and its source is behind Akurba, community approximately 1km. The water comes out from the ground (aquifers) and flows through the city’s outskirts. The river is surrounded by trees, and grasses. It is more shaded in some areas (about one-seventh of its length) compared to others. The stream is generally shallow with depth ranging between 0.4-1.8m, slow moving in nature and of riparian vegetation. (See figure 1, 2 & 3 for maps).

Project – An examination of vacancy rate on some selected residential properties