Project – Assessment of the factors responsible for residential properties rent default

CHAPTER ONE: INTRODUCTION

1.1    Background of the Study

Residential properties are known to have physical and economic significance, as well as social implications which affect the quality of lives and dignity of the occupants (Jinadu, 2017). It is estimated that roughly 40% of the world’s population lives in rental housing (Malpezzi, 2013), hence, the increasing demand for residential property in urban centres would continue to attract the investment interests of real estate developers (Olujimi& Bello, 2019). However, a very important motive of residential real estate investors is to secure optimum returns on their investment which commonly take the form of rental values. While rent payment remains an obligation of tenants to their landlords, rent arrears/default by tenants over the years have become a major course for concern to investors. As observed by Ogutu (2013). In Nigeria also, a major area where private rental housing appears to be failing is in the aspect of rent (Oni, 2020). Generally, it is common among tenants that have taken possession of accommodations in urban areas, paid initial advance rent payment of one to three years and had met the terms, conditions and requirements stipulated in the tenancy agreement to suddenly become recalcitrant making collection of subsequent rents to be difficult (Oni, 2020).Such situation is worrisome to stakeholders in real estate investments particularly landlords and or their agents. Rental marketing Minna, a major town in North Central Nigeria is not an exemption.

The role which rental housing plays in the real estate sector cannot be overemphasized as a great percentage of urban dwellers live in rented apartments (Mondel, 2001; UN-HABITAT, 2013; UN-HABITAT, 2016). The bulk of rental housing provision across the globe was observed to have been provided by the private sector. In Denmark, Germany, France and Switzerland investigations revealed that banks, insurance companies, pension funds and real-estate companies rent out about 80% of the total housing stock. In Canada, it has been noted that “the small investors has always been important in the supply of rental housing.” And, in Russia, small-scale landlords have been noted to increasingly contribute to the provision of the rental housing units (Watson & McCarthy, 2018; UN-HABITAT, 2019; Mondel, 2021; UN-HABITAT, 2016). These investors recoup their capital and get profits through periodic collection of rent from their respective tenants. It has been observed however, that after the payment of the initial rent, most tenants in developing economies defaults in payment of subsequent rents. This scenario affects the investment expectations of property owners and breeds conflicts among stakeholders in the rental housing sector. Moss (2013) identified factors responsible for rent default as follows: ‘affordability, disputes over quality of housing units, confusion over the type of tenure and the prevailing culture of entitlement on the part of tenants’. Salleh, Yosof, Johari & Talib (2014) in a study conducted in Malaysia indicated that only ethnic group variable significantly influenced the ability to pay rent in the study area. Similarly, Dabara, Ankeli, Oluwasegun & Odewande (2014); Ankeli, Dabara, Oyediran, Guyimu, & Oladimeji (2015) and Sani & Gbadegesin (2015) identified poor housing facilities, breach of tenancy agreement, unemployment, retrenchment, poor property maintenance, bad landlord/tenant relationship and harsh landlord’s policy as the major factors responsible for rental default.

Rent payment remains an obligation of tenants to their landlords. According to Akogun and Ojo (2013), rent default has been a significant challenge to the management of real estate property (commercial property). These properties often face challenges of rent defaults by tenants as most tenants are found to default in rent payments based on the lease agreement (Kemiki et al., 2017). Tenants quickly make initial payments; however, subsequent rents become a nightmare (Dabara et al., 2017). In the property market, the default in rental obligation can hinder the property owner from attaining the investment objectives, mainly to recoup the return from the investment, thereby leading to default in the mortgage, delays in financing routine maintenance and repairs, among others (Olukolajo et al., 2015). Where a property manager is involved, apart from deprival of fees for services, the competence as a professional is at stake as this makes the agent or managing firm appears incompetent in carrying out their duties as agreed upon with the property owner. This scenario can affect the investment expectations of property owners and breeds conflicts among stakeholders in the rental housing sector (Olukolajo et al., 2015).

1.2       Statement of Problem                                  

The process of rent collection in residential property has a lot of problem/challenges. One of such challenges is delay in the payment of rent. Some tenants fail to meet up with the agreed deadline for payment. This could be as a result of delay in the payment of wages by their employers, increase in rental price, the effects of inflation, among other factors. Delay in the payment of rent often results in some significant impacts on return on investment and could also lead to legal battles between the landlord and the tenant, which may lead to the forceful eviction of the tenant. The failure to pay rent and as when due is a major and the most frequently committed breach which rocks the landlord-tenants’ relationship, (Oni, 2021). In a bid to forestall this, rental property owners as well their agents engage in scrutiny of prospective tenants within a set criteria through an adequate tenant selection process. As much as certain tenants’ characteristics are historical, there is possibility of change in behaviour over a period of time in some aspects, thereby making it difficult to blindly rely on past records of prospective renters. Olukolajo and Ojo (2016) identified rent related issues such as default in rental payment and its associated cost of recovery as a major contributor to conflicts between landlords and tenants and a risk to property investment. The question now is what are factors influencing residential property rent default in residential property in Idah, Kogi State.

1.3    Aim and Objectives of the Study

Aim

This studies aim at examining the factors responsible for rent default in residential properties in Idah, kogi State.

Objectives

To achieve the above aim, the following objectives will be pursued;

1. To examine the factors responsible for rent default in residential properties
2. To assess the methods of rent recovery adopted in the study area.

• To identify if there are measures put place by government to control rent in the study area.

1. To ascertain the level of compliance of the property owners with the measures.

1.4 Research hypothesis

Hypothesis (1)

H0: certain factor do not significantly influence tenant’s ability and willing to pay rent in residential properties

Hi: certain factors significantly willingne to pay rent in residential properties.

1.5 Significance of the Study

This study focused on the analysis of factors influencing residential property rent default in Idah, Kogi State. This is especially significant considering the rising wave of tenancy cases in law courts and the high rates of rent default in the country. This study will help to reduce tenancy cases by identifying the incidence of default in rental payment and proffering solutions to address these problems. By reducing the number of rent-related issues, there would be better and higher return on investment. The significance of this study will also be found in the area of reduction in forceful eviction of tenants. This will result from a better understanding between landlords and tenants.

Furthermore, since rent collection and payment is an important aspect of property management, this study will enable property owners to assess the best possible way of collecting rent. This will help to save time spent on litigations and as well save resources which are scarce.

1.6    Limitation of Study

It is a tasking job to conduct research of this nature. The following constraints were encountered in the course of the investigation.

Financial constraints, is one of the major constraints on assessment of the factor responsible for rent default in residential property in study area, and limited fund/financial resources available to the researcher for the study. This has restrained the researcher from conducting a detailed survey.

The duration of time required for the researcher work was too short, thus constraining the researcher further from setting more information.

The respondents are unable to release the details of the requirement information to the respondents due to lack of confidentiality there were un-cooperative in volunteering all the information required. Through the much we could get with enough to carry out the study.

1.7    Scope of the Study

This study is limited to the factors influencing residential property rent default in idah, kogi state. Emphasis is placed on residential properties in Idah town alone because of the importance of residential properties and it serve as a source of housing and also has the highest percentage of land use. This is because rent collection covers a wide range of property types, and delving into these will make the study too broad.

1.8    Brief Description of the Study Area

Project – Assessment of the factors responsible for residential properties rent default