Following the latest move by the government to enact law compelling monthly rental payment in the country, one of the experts in the sector, Founder and Chief Executive, Cromwell Professional, Mr. Sola Enitan, has warned against its implementation, saying that rent control will be injurious to housing investment sector in Nigeria.
According to him, government cannot control what it does not produce, pointing out that the free market system is what drives investment into the economic sectors.
In his article titled “Stop Distorting the Housing Market: Rent Control is Injurious to Housing Investment Sector in Nigeria”, the estate surveyor and valuer, said the recent statements by concerned public servants in Lagos and Abuja about the galloping house rents and the yearly payments rental market convention “speaks to a lack of proper understanding of how the housing market operates.”
He argued that if government could not find a peg for the drowning Naira, how would it hope to achieve rent control which responds directly to governments failure at achieving financial stability.
In examining the home rental market in Nigeria amidst high-interest loans, negative equity, and two-year rent advance payments, Enitan pointed out that several factors contributed to the incongruence between desirable monthly rent payments and the challenges faced by landlords.
On high mortgage interest rates, the professional said the prevailing high-interest rates on mortgage loans have made it financially burdensome for landlords, who would have financed property acquisitions through loans.
“The monthly rental system, in many cases, does not align with the high-interest payments on mortgages, affecting the profitability of rental properties.
“In other words, government will drive more and more investment out of the housing sector into other more profitable areas. With housing deficit knocking 22million as it were, any further pressure on the sector will engender extreme homelessness,” he said.
He said that negative equity referred to a situation where the rental payments made on houses by tenants is lower than the interest rates the landlords have to pay on a monthly basis to the mortgage loan provider.
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“It can also reflect itself as a situation where the market value of a property falls below the outstanding mortgage balance, which places landlords in a challenging position and could further exacerbate corruption in the economy of the nation as landlords seek alternative sources of home loan repayment. It becomes difficult for them to cover mortgage payments through monthly rents, especially when property values don’t measure up. Nigerian housing market is perpetually under a negative equity system,” he said.
He explained that the cultural norm of requiring tenants to pay up to two years’ rent in advance remained the landlords way out of a terrible mortgage system.
Although, he agreed that this mode of payment put financial strain on tenants, making it challenging for them to manage their finances.
However, he emphasised that insisting on monthly rental payments or any rent control measure or policy by government would create serious cash flow issues for landlords.
To achieve monthly rental payments and mitigate the challenges faced by landlords, he urged government to consider some measures not limited to interest rate subsidies or mortgage refinancing programs; property value support programs; affordable housing initiatives; financial literacy programs; collaboration with financial institutions, and tax incentives for landlords, among others.
By addressing these factors and implementing supportive policies, he stated that government would contribute to a more sustainable and balanced home rental market in Nigeria, ensuring that both landlords and tenants benefit from a fair and economically viable system.
Nigerian Tribune
