Lagos based real estate surveyor and valuer writes on planned monthly rent payment, proposed for Lagos based tenants, interesting read.
Though the operational modalities for the monthly-rent payment are still not very clear, there are pointers that the model may not have been well conceived. The process of policy formulation usually follows six stages: problem emergence, agenda setting, consideration of policy options, decision-making, policy implementation and policy monitoring and evaluation.
The principle of good governance also stipulates “stakeholders’ participation”. The landlords, the tenants and their agents are supposed to be properly briefed through elongated debates and discuss before the implementation of this policy. The monthly-rent payment scheme will leave Lagos tenants with excess purchasing power to buy food and other needs. It is hoped that Lagos State government will put in place measures to curb inflation!
The state government said the initiative is part of the resilience policy of the current administration, which was agreed after a rental survey that found out that 88 per cent of tenants in Lagos State would rather pay their rent monthly. Amid serious debate over the monthly rent payment, Lagos authorities have explained that it will commit N5 billion into the monthly house rent scheme to ease the burden of yearly payment on residents. The N5 billion will be deposited into designated accounts in participating banks for onward remittance as loans to qualified applicants. This is a laudable project that supposed to reduce burden of Lagos residents to traffic challenges, lack of electricity, perennial flooding and high cost of foods.
According to Lagos Property Market Consensus Report (H1 2020) published by the Lagos State Branch of Nigerian Institution of Estate Surveyors and Valuers (NIESV), the average yield (return on investment) of properties in Lagos State is 4%. The capital value of active rental properties in Lagos State is in the region of N13 trillion. This gives a rental value of N520 billion per annum. Lagos State residential properties’ tenants pay annual rent of about N520 billion. Committing N5 billion to assuage yearly rent of N520 billion is like a drop of water in the ocean! Its impact will not be felt. “Monthly Tenancy Agreement Scheme” is also a misnomer. It will be better to call the scheme “Tenants Monthly Rent Assistance Scheme” since the scheme will only assist the tenants without meaningfully affecting the landlords.
For a scheme of this nature to work perfectly, three risks (legal, operation and default) must be taken care of. The legal framework for a scheme that is planned to start in January 2022 is not yet on ground three weeks to the starting date. Bank Verification Number (BVN) can help in fishing out defaulters but what will be used to fish out tenants who apply for higher loan than their actual yearly rent? There must be a desk officer in the Lagos State Ministry of Finance or Ministry of Housing in charge of the applicants so that housing loan does not become a business loan with bottlenecks and bureaucracy. With the result of the survey carried out by Lagos State government showing that 88% of tenants in Lagos State will prefer to pay their rents monthly, those to be in charge must be prepared for a tough time! This is if they want to have a pass grade.
It must also be stated that the scheme will work better if small tenants who pay less than a million naira per annum are given priority over big tenants who pay over N5 million per annum. In 1990, Ghanaian government established the Home Finance Company to give loan to buyers and renters of houses. This company collapsed shortly after it was set up for lack of operation fund due to high default rate. With mortgage loans experience in Nigeria and with the enormous seized properties in AMCON’s (Asset Management Company of Nigeria) portfolio, those managing this tenants’ assistance fund must be prepared for a big challenge of loan recovery. It is doable but daunting. Since this is a social investment, those in charge must be properly briefed to see professionalism as their watchword and let merit be their guide in selection of beneficiaries.
It is noteworthy to mention here that legally, average landlords/property owners and their agents in Ikoyi, Victoria Island, Ikeja GRA, Lekki and Banana Island collect minimum of two years rent in advance. If the scheme is planned to cover these kinds of tenants, then the tenants’ assistance scheme must be allowed to cover two and three years rent. What is good for the goose is equally good for the gander. It is also believed that those renters in the informal sector will be served as soon as possible so that they are not discriminated against as law-abiding residents. The benefits of the participating banks in this scheme are also shrouded in mystery. The scheme can only be perfect if it is free of cost to the beneficiaries. And if well managed, it will attract more investors into the Lagos State property market.