Monthly rental payment: A cog in the wheel of business?

As the plans by government to enforce the monthly collection of rents against the initial practice of one to two year advance payment gather momentum, many real estate professionals and developers/investors have yet to come to terms with the new proposal. DAYO AYEYEMI reports.

AS landlords and real estate developers/investors are yet to come to terms with the proposal by the Lagos State Government to kick-start monthly rental payment across the state any moment from now, a new bill seeking to make it an offense for any landlord to demand payment of advance rent from tenants of residential and office buildings and spaces beyond three months also surfaced before the National Assembly last week.

The Bill, titled, “Advance Rent for Residential Apartments, Office Spaces, Etc, Regulation Bill 2022” was being sponsored by the lawmaker representing Kogi West Senatorial District, Senator Smart Adeyemi.

Justifying the essence of the bill, which has already passed first reading, Adeyemi said it would enable tenants to make a maximum advance payment of three months’ rent, with subsequent monthly payment.

He explained that he had discovered that landlords were compelling tenants to make one-year and two-year advance rent payments before they would give them keys to their apartments.

“It may not be an issue to quite a number of people but to many others, it is a great pain for them. Most Nigerians need the protection of the law to be able to meet their basic needs after paying rent,” he said.

Canvassing for support, Adeyemi said “Many landlords did not secure loans to build their houses; they are products of free money they acquire from the system. Yet, they make life difficult for poor Nigerians who do not have such privilege of making ill-gotten money from the system and put up structures.

“The buildings are constructed in such a manner that an average Nigerian would not be able to afford it. Many people are involved in corrupt practices to get their rents paid, while the ladies took to prostitution.    “The law we are proposing stipulates a maximum advance rent payment of three months. After the expiration of the three months rent, the tenants are expected to pay monthly.

“There are many tenants whose salaries are competing with their rents because they live in cities like Abuja. The law will prevent the poor workers from any form of oppression,” the senator said.

While many industry’s players see mandatory monthly rental payment as  the way to go, others experts are very skeptical about the initiative, saying it would amount to double standards if the government is mounting pressure to control the rental market  and fail to do anything about the  rising cost of building materials.

 

Arguments in support

Chairman, HOB Estates Limited, Chief Olusegun Bamgbade, sees the initiative as a welcome development, saying, “if the system will be made to equally protect the interests of the developers/home owners, it’s not really a bad idea.”

According to him, monthly rent payment would remove people crave to get rich quickly amongst the citizenry. He described bulk rents as “suicidal.”

He advised other developers to support the Lagos State Government and the National Assembly to look into it and make a law to that effect.

“Once the developers are protected with relevant laws, especially with the Bank Verification Number (BVN) and National Identity Number (NIN) that forbid multiple identities, no one can run away with your money.

All the government needs to do is to peg the interest rate to probably three per cent per annum for real estate developers,” Bamgbade said.

According to the HOB boss, with a low interest rate, developers could take a long-term loan for building construction and give out the houses on a monthly rental basis.

“We are in too much of a hurry to make money overnight; nothing stops developers or building owners from collecting their rents monthly.

“The banks are to blame for low activities in real estate developments because of their greed and selfish drive to make profits overnight.”

“Nothing stops the Central Bank of Nigeria (CBN) from pegging real estate development loans at three per cent per annum with a caveat that banks must lend 25 per cent of their capital base to real estate development at three per cent per annum, you will see houses everywhere at affordable rates. When the government is ready, there’s always a way out,” Bamgbade said.

Group Managing Director, Global PFI Group, Mr MKO Balogun, said that real estate depended on occupancy, explaining that it would amount to a wasted investment   if properties are built and not occupied.  According to him, the government’s policy is a guaranteed rent for the landlords.

Another professional, Emmanuel Akinwunmi, pointed out that three months’ rent legislation was a good proposition, noting that in civilised climes, rent payable was two months in advance “after when one month’s rent in advance ensues.”

“Three months advance rent payment is not bad; but, if we need to copy compassionate best practices, let’s copy well. In those civilised countries (I don’t want to use developed countries), the housing development sector is being treated like the heart-beat of the economy.

“Interest rates are not only single digits, but range from one per cent to five per cent per annum; mortgage finance is seamlessly available to eligible borrowers. Technology saves costs as the lender and borrower may not even physically meet,” he said.

According to him, change of ownership of property in a sale and purchase agreement might happen within a few hours, adding that incentives were available for developers, home owners, buyers and other stakeholders in the value chain.

Besides, he pointed out that social housing in advanced countries was robust and that property taxes checkmate incidence of idle properties.

”In Nigeria, landlords would say “the buildings may remain idle; buildings don’t eat”. In civilised climes, buildings do “eat” because payment of property tax discourages keeping properties idle, “he said.

He also raised a big poser regarding the nation’s legal capacity, judicial efficiency and regulatory comfort to oversee what he described as the “human-face proposition.”

He also argued that not all landlords had easy access to easy money, canvassing for a holistic overhaul of the system.

Akinwunmi said “A holistic overhaul of the system is the answer, not isolated applause generating quick-fix propositions by those who look the other way as the country stays precariously on the brink! God.”

 

Argument against

Executive Secretary, Association of Housing Corporations of Nigeria (AHCN), Mr. Toye Eniola, said the policy would discourage investment into the real estate sector.

He described the new moves as “another ploy to impoverish the people”, stating that investors might look at other areas to invest rather than in real estate.

He raised some posers concerning the intention of the government to control rents without controlling the cost of building materials.

He said: “How can the government plan to control rents without controlling the rising cost of building material and interest rates? Where is the conducive and enabling environment that will attract investors to the sector?

“Where is the foreclosure law that will protect landlords from recovering his property in case of default? Where is the tax rebate extended to real estate investors?

 

 

 

 

“Where is the government programme to take care of the social housing for the low and medium income group?”

Managing Director, Ace  Hi-Teck Construction Company, Mr Adewunmi  Okupe, sees the new bill as a clog in the wheel of progress, saying he was  not aware of any law that would protect landlords in this regard.

“And even if there is, how enforceable is it? It is really very discouraging but not enough to deter investment in real estate because people will always find a way around it.

“What prevents a landlord from collecting one year rent and making serial monthly receipts and or documents to cover up?” Okupe said.

According to him, the government is just looking at the plight of the tenants without considering the landlords that have invested their money.

On the way out, he is of the opinion that the government should guarantee payments, “maybe on a quarterly or yearly basis to the landlord while the tenant pays to the government directly.”

“They can start with people who are pensionable and use their pensions as guarantee,” he added.

A real estate professional, Mr Femi Oyedele, said the proposal to compel monthly rental collection was inimical to real estate investment, adding the sponsor of the bill was ignorant of happenings in the real estate.

According to him, there was nowhere in the world where the government interferes in the process of doing business.

“Senator Smart Adeyemi doesn’t know anything about real estate. I would have joined the issue with him if he only proposed a maximum of three months in advance for residential properties only.

“There is nowhere in the world where the government interferes in the process of doing business.

Office, shopping mall, warehouses, industrial buildings, etc are not basic needs of man.”

“Under what excuse will the government control the price of office space and industrial premises?

“For a tenant who wants to alter the building and needs a long lease, is the government not acting as a clog in the wheel of his business? Only rent of residential buildings are controlled and nowhere is direct control effective as “role model” control,” Oyedele said.

According to him, those begging the senator for one year rent would still beg him for three months and one month rent, pointing out that people needed work and not rent control in Nigeria.