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The pressures arising from the shortage of housingin Nigeria (said to be between 14-17million units,depending on who is reporting) is felt strongly in thesale and rental markets. Properties are generallyover-valued and rental rates unjustifiable. To putthis in perspective, the relative dearth of new resi-dential property in the UK from 2008 following thefinancial crisis has led to an upward growth in the

rental market, with rates rising by 3540% in majorcities.1 In Nigeria, a city such as Lagos (populationof 15million people) is under immense pressure,having failed to keep up with its citizens housingneeds in the past 30+ years! The result is that ask-ing sale and rent values are often higher than com-parable residential areas in major cities in Europeand America, whereas the property, infrastructureand services are not of comparable quality. Real-tors have stated that high brow residential areas inLagos such as Ikoyi were overpriced by as much as30%.2

Tenancy agreements often include requirementssuch as 2 - 3 years upfront payment, up to 10%legal and agency fees, and large annual paymentsfor facilities and back-up services (where the prop-

erty is offered as serviced). This trend was fuelledby multinationals a decade and a half ago, who in abid to acquire/lease limited residential and commer-cial office space were willing to pay significantsums in spite of several unfavourable tenancyterms. More recently however, these organisationsnow encourage their staff to house themselves andhave also streamlined their commercial space re-quirements.

This edition of Real Estate Insight discusses howthe new Lagos Tenancy Bill could potential aid orhinder the development of a rental market consider-ing the current state of the property market, analys-ing stakeholder and industry concerns about thelaw.

The Growing Housing Shortage in LagosMetropolitan Lagos covers 37% of Lagos landmass and hosts about 80% of the population, re-sulting in an average population density of 20,000persons per square kilometer. 3 By comparison,London has an average population density of 4,900persons within the same area.4 The Lagos StateDevelopment and Property Corporation (LSDPC)established to drive the provision of housing(directly and indirectly) has in the past 15 yearsdelivered 20,000 housing units across the State.5 Inthe same period, Lagos State required 224,000 6housing units per annum. In effect, the Stateagency contributed 0.6% of the actual requirement.By comparison, Accra, Ghanas capital city with an

annual housing gap of 98,0007 units (and withseveral similar constraints as Lagos, albeit todiffering scales) achieved an annual average of35,0008 housing units in the same period, meet-ing 36% of the requirement. Today, Lagos re-quires a total of 2.17 million housing units toclose the existing gap.9

Home ownership finance remains inaccessibleand unaffordable to 80% of Nigerians. Thereare only a couple of mortgage products avail-able and double digit interest rates (up to 20%)and short tenors (less than 10 years)10 continueto inhibit growth.

Housing Supply: No Government Initiativesin the Build-to-Let MarketNigerias housing policies are a set of welldocumented but unimplemented ideas. Govern-ments involvement in housing delivery hasbeen fraught with inconsistencies and un-friendly private-sector policies. In spite of recentpolicies targeted at encouraging private partici-pation, (2 years ago, Lagos State put out PPPsaimed at delivering 100,000 units), very little

success has been recorded in the area of im-plementation/housing delivery. LSDPC one ofthe most vibrant state-owned housing agenciesin Nigeria, focuses on the development andsale of homes (generally targeted toward themiddle and high income earner) and does notplay in the rental market. Invariably, investorsbuy these properties (often whole develop-ments) and put the properties back into therental market at exorbitant market rental rates.

A Lagos State Government (LASG) researchhas revealed that 90% of the housing stock inthe State is held by less than 10% of the popu-lation. In 2010, it was reported that 80% (asagainst 19%11 in South Africa and 22%12 inGhana)

11of the population live in rented accom-

modation and spend more than 40% of theirincome on rent13- above the 20 30% bench-mark recommended by the UN. In spite of this,LSDPC does not see itself as an organ whichcan act as a catalyst in the provision of build-to-let accommodation.

LASGs Proposed Tenancy BillIn 2009, LASG initiated a tenancy bill whichseeks to regulate tenancy and rent administra-tion and strengthen existing housing laws in theState. Other reasons for the Bill include to en-hance access to the current real estate stock byaddressing the issue of escalating rent andproperty values.

Will the Lagos Tenancy Bill encourage or endanger the rental

property market?

V O L U M E 1 5M A Y 2 0 1 1

The Proposed Lagos Tenancy Bill (LTB)

Figure 3: Housing Supply Versus Population of LagosSource:: Alitheia Research Unit

Figure 1:Regulating Tenancy and Housing LawsSource: Assured Legal

Figure 2: Public Sector Supply of Housing Unit i n LagosSource::The State of the Lagos Housing Market, Roland Igbi-nobia

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In a recent workshop with stakeholders includingproperty owners, agents, lenders and tenantgroups, the LASG revealed the intention of the Bill,stating that it is illegal for a landlord or his agent todemand or receive from a sitting tenant rent inexcess of 3 months in respect of any prem-ises (residential and commercial). The Govern-ment affirms that the infringement of the law willattract a fine or/and an imprisonment term. Theworkshop concluded with some pessimism. Tenantgroups were concerned about the ability of theenforcing agency to ensure compliance and actdecisively with defaulters and wondered how suchlaws could be implemented in the face of a hugehousing gap.14 Comments from property ownersand Agents were no less negative.

Tenancy Laws in Other Emerging MarketsIn India, the rental property market is regulated bylaw. With strict enforcement of these laws, prop-erty analysts say the market is distorted, contribut-ing to the freeze in land and rental prices in city

centres, hindering new urban renewal initiatives.The rent control law became a disincentive to in-vestment in rental housing and led to a reductionof rental housing stock which in turn led to a stag-nant municipal property tax revenue. Althoughattempts have been made to amend the laws, realestate experts insist the laws should be expungedaltogether and market forces should determinerental rates and the shape of rental property mar-ket.15 In Ghana, laws established to regulate therental property market are not enforced. Instead ofa 6-month upfront payment as stated in the law,landlords demand multiple years rent in advance.Property analysts say markets forces will continueto hinder enforcement, calling for a repeal of thelaw.16

Proposed Tenancy Law - Inhibiting FactorsFor reasons already addressed, rental housing willcontinue to be in high demand across Lagos . Atenant in dire need of residential or commercialaccommodation will meet a landlord (or agent) andan agreement will be struck regardless of what thelaw states.

"Legal theories must give way to practical reali-ties," he said. "There must be reasonable penaltiesto serve as deterrents. If a landlord collects two

years, what happens?"17

With the law in place however, institutional inves-tors will take a view on the side of the law. Thismeans project viability studies will take into consid-

eration the high cost of finance and constructionand reduced upfront rental charges (income), likelymaking investments in new projects less attractive.

Construction costs are nearly 15% higher than inSouth Africa for comparable developments.18 Thisis driven by incessant increases in the cost ofbuilding materials (of which 70% is imported)19, thegrowing cost of labour, and payments to LASG onproperty transactions. These costs amongst othersmake the supply of housing (and property develop-ment in general) even more capital intensive. Areduced immediate return (from upfront rent pay-ments) may make the financing of real estate evenless attractive. The administration of rent payment

Page 2V O L U M E 1 5 M A Y 2 0 1 1

Figure 6: Lagos Real Estate LandscapeSource: TIG Blogs

Figure 4: Number of housing units supplied in London in 15

yearsSource: Global Property GuideUnited Kingdom

may also become more cumbersome. Tenantturnover will likely increase (as tenants will havemore options) and for property owners whohave traditionally dictated the tune, the possibil-ity of voids within the course of a year increasessignificantly.

RecommendationsUN Habitat states that a healthy housing systemprovides authorities with a way in which citiescan reduce quantitative housing deficit and awider range of housing options through the sup-ply of affordable housing and the developmentof a vibrant rental market. Unfortunately this isnot the case in Lagos as the huge deficit willalways distort the rental market. However, it isrecognised that an unregulated system will alsocontinue to foster a strong pro-landlord market.For effective implementation and enforcement ofthe proposed tenancy bill, LASG needs to;

encourage potential landlords by develop-

ing an effective land administration system

which makes land accessible and afford-able for development of rental properties,

provide/encourage access to affordable

housing finance options for mortgages andsmall loans for landlords to improve theirhomes for rental purposes,

create an enabling environment which

encourages private sector involvement inthe supply of varying affordable housingoptions which suits different income levels,

implement policies which reduce construc-

tion costs. These include reducing fees andtaxes related to the cost of production ofhouses and consider regulating the cost ofbuilding materials,

establish a legal and regulatory structure topromote, control and monitor housing sup-ply.

The general increase in supply will by itself pro-mote competition in the rental property market.

Renting is an essential component of a healthyhousing system, therefore, for effective regula-tion of the rental property market, LASG shouldrecognize existing rental arrangements and findflexible ways to regulate them. In additionLASG should enact the law with provision for itto evolve and be backed against current marketforces.

References1

Jones Land LaSalle Global Market Perspective , Second Quarter 2011, Real Estate Resillience2 Data Collected from interview with Realtors and real estate agents in Lagos3The State of Housing Market 2009, Pison Housing Company4 Focus on London: Population and Migration Date Store5 Lagos State Development and Property Corporation Website.5 Pison Housing Company, 20087 Figure is based on estimate which states that 70% of the National annual housing deficit of140,000 is required in Accra8 Brief on Ghana National Project To Be Executed Six Engineering & Construction, Ghana

Limited, 20119 Affordable Housing Part 1: Brigadier General Reis10 Africa Housing Yearbook 2010, Center for Affordable Housing Finance in Africa11 South Africa Community Survey on Dwelling UTenure, Social Housing Foundation, 200712 Strategic Assessment of the Affordable Housing Sector in Ghana CHF International13 N Kokularupan, Housing Finace Consultant11IFC Malaysia at the International Housing FinanceWorkshop 2010 in Lagos, Nigeria

14 The Lagos State Government Website15 INDIAN GROUND: Rental Laws in India - An Overview16Issue on Rent: Not A National Concern Enough -www.joyonline.com17 Rasaq Akande: Enforcing Lagos Tenancy Rights, www.next234.com, June 2011 18 Alitheia Research19

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