With the rising cases of job losses and high cost of living, property owners are bearing the brunt of the economic crisis as residential tenants in the highbrow and high-density areas are having a hard time paying their rents.
These have prompted property owners to make hard choices on the type of tenants to be assigned their property by adopting diligent standards. Some of the landlords must deal with their own mortgage obligations and defaults, which have accrued.
The Guardian learnt that the worst hit is office buildings, malls, groceries, low, high rise, and other categories of residential buildings in Lagos, Abuja, and Port Harcourt. Some property owners are exploring eviction moratoriums for certain small business, commercial and residential tenants, while some tenants are already facing eviction.
It was gathered that several landlords in populated areas are struggling to collect rent due to perennial default by tenants. Many tenants who have been living in their houses for more than three years often want to pay rent at their own pace, which later leads to default.
A renowned property owner in Lagos, Alhaji Busari Isah, told The Guardian that he was frustrated with mounting rent defaults in his property and was contemplating putting it on sale until the intervention of professional estate agents. He added that the Lagos Tenancy law is a disservice to the property owners, as the process to recover property is fraught with loopholes. “I have seen cases where tenants lag for one year and six months in rent, and then one day, they wake up and leave,” Isah said.
The past chairman, Faculty of Estate Agency and Marketing, Nigerian Institution of Estate Surveyors and Valuers (NIESV), Mr Sam Eboigbe, said the real estate sector is not immune to the harsh economic realities.
Eboigbe recalled that the remote work culture has significantly contributed to the crises in the commercial property segments since the COVID era. Companies on account of this have reduced the need for space thus compounding the crises in that segment of the market.
According to him, the complaints from tenants’ inability to meet their rental obligations as and when due are consistent with the fallout of the economic reforms of the ruling government to rejig the economy.
“The removal of fuel subsidy leading to all-round inflation, unimaginable increase in the prices of goods and services, can be advanced as part of the reasons for the fury and economic hardship unleashed on Nigerians lately.
“The floating of the naira in the foreign exchange market where the dollar is presently being exchanged for about N1,600 has also affected the sector. The prices of building materials and the cost of acquiring land are not spared either. It can be summarised that the people have been visited with unprecedented economic quagmire,” he said.
He said this has resulted in delays and defaults in the discharge of rental obligations by the occupants or tenants. “In most cases where the tenants are compelled to write undertakings to meet some deadlines to effect payment, they repudiate such agreements.
“It is more worrisome in scenarios where the costs of providing common services for tenants have escalated, and yet payment for the provision of such services is a huge challenge,” he said.
Eboigbe said seasoned and experienced real estate professionals have always taken the pain to do comprehensive due diligence at the point of tenant selection. “Promotion of good relationships is key.
“The time to commence discussions on rent renewal is not within the due dates or expiration of terms. So, the challenges of tenants can be handled well in advance and mitigated accordingly. Sometimes, flexible payment terms are encouraged to forestall protracted outright defaults in meeting rental obligations.
For him, the gamut of the activities in the sector by property developers has been affected as project completion dates are hardly met. The prices of building materials are never stable and the prices go up consistently and the finished projects may not easily be sold in the marketplace.
The investors are weighing their options. Some are selling off their investments while others are adjusting to the market by similarly asking for an upward review in the rent. Some have temporarily placed on hold further investments in the sector until the economic climates improve. Diaspora investors are also spreading their risks. Their investments in the sector, given the exchange rate, are not adding up any longer, resulting in negative cash flows.
Chairman of NIESV Board of Trustees, Prof Austin Otegbulu, stated that the nose-diving of the economy is having a scissors effect on both individuals and corporate organisations. “Some people might have paid their rent for one or two years in advance, and the impact of the economy on the sustainability of rent will become more obvious by next year and beyond.
He revealed that residential properties and upper-end commercial properties are mostly affected due to the high cost of living and high cost of running a business. “This is worsened by the declining value of our local currency, poor economy and loss of jobs. Salaries are not regular, and the performance of most businesses is on the downtrend.”
Otegbulu stressed that accommodation is a necessity for both individuals and corporate organisations. To curb the trend, he suggested that households and organisations should cut costs in some areas to accommodate rent payments.
“Some tenants may also propose instalment payment of rent as a way out. Some landlords may also give rent allowance to their tenants for the next two years or until the situation improves.”
He said it would affect returns on investment, and mortgage repayment, thus, leading to bad debts. “It may also discourage financial institutions from funding real estate development,” he added.
Vice National Chairman, Association of Estate Agents in Nigeria (AEAN), an affiliate of NIESV, Mr Gbenga Ismail, said lower-grade properties are mostly affected, and the situation is not yet critical. “Tenants have moved out of unaffordable locations and the consequence is that there are probably more vacant situations.
“The default rate is higher in the commercial segment than in residential properties. What is however more prevalent is delay in rent and installment payment. Rents are higher and economic circumstances are tough, so companies are downsizing.
“We can only advise our clients when we see that. Rather than have a void or vacancy, we can be more reasonable with rent increases but with inflation at 32.15 per cent, it is difficult to hold rent at rates far below inflation.”
Ismail, who is the immediate past NIESV Chairman, Lagos branch, said: “Rents have gone up significantly, so if you developed for rent 10 years ago, you are fine but developing today for investment is a big challenge and difficult to earn efficiently in the current economic environment.” (Guardian)
