The Rent-to-own (RTO) scheme was introduced by the Federal Mortgage Bank of Nigeria (FMBN). In this scheme, the Bank purchases the property from the developer and leases it to the buyer who pays the mortgage in instalments, like rents until he is done with payment.

The scheme aims to give renters a pathway towards eventual home ownership. Each monthly instalment is shared between the rent and a fixed amount saved as part of the down payment for the house. The tenant/buyer can apply for another financing option – such as a mortgage – to pay the outstanding balance for the house. This is payment at the end of the lease period.
The benefits of rent-to-own schemes include:
• Flexible and convenient payments that help the tenants plan their finances
• An easier, long-term option for home ownership
• Less risky than traditional mortgages, as people are not locked into long-term deals.
• Rent payments also serve a dual purpose of contributing towards ownership.

In an effort to address Nigeria’s housing deficit, which has been aggravated by the country’s current  economic conditions, and its negative impact in the real estate sector, Rent-to-own schemes are a feasible way to eventually purchase a property without having to deal with a hefty lump sum payment.

As a result of soaring inflation, propelled by, volatile exchange rates, devaluation of the naira, and the removal of oil subsidies, prices of building materials , like cement have skyrocketed, These factors have had a devastating impact on Nigeria’s real estate sector.

Landlords and developers alike will probably attempt to transfer part of the cost of constructing homes on to tenants in the form of rent hikes because they are now paying more for building materials.

The price of cement, which is a major building component, has gone from N3,500 per 50kg bag to N10,000, while some are even selling for 15,000. This increase was attributed to an increase in the cost of raw materials, such as limestone, clay, and gypsum, as well as fluctuations in exchange rates. The cost of other building supplies has also increased, particularly rods, often known as reinforcement. Previously sold for N255,000 per tonne, 8mm rod is now available for N518,000; 10mm rod, which sold for N442,000, is now available for N520,000; and 12mm and 16mm rod, which sold for N446 are now available for N515,000. The 20mm and 25mm, which were once sold for N442,000, are now valued at N530,000, depending on the locality.

Research shows that, landlords are becoming worried over increasing inability of their tenants to meet up with their rent obligations which has caused a backlog of arrears running into months and, sometimes, years. The situation, according to the findings, has put many of them who rely on the timely payment of these rents for their survival in dire straits, while tenants are struggling for survival amid shrinking income.

As rents rise almost monthly, tenants are perhaps the worst hit. A real estate consultant lamented, “because new houses are not coming to the market as expected, landlords are taking advantage and raising rents to a point that unsettles most tenants, especially those in the cities.”

The requirement for a sizable down payment is one of the main obstacles to becoming a homeowner in Nigeria, that is why initiatives like the rent-to-own scheme addresses this primary barrier.

The Rent-to-own scheme ought to be widely implemented in Nigeria because it provides a useful way to get past the obstacles that many individuals encounter when attempting to transition from renting to owning. In addition, the scheme gives people and families a great alternative for enjoying the advantages of home ownership without having to immediately shoulder the financial burden of a sizable down payment.

Conclusively, an innovative solution such as the Rent-to-Own scheme has the potential to significantly lessen the housing deficit besetting the country’s housing sector.

Source: ViewPoint Housing