Lagos’ monthly rental scheme suffers three-year delay

In December 2021, the Lagos State government proposed a monthly rental scheme, which has suffered an inexplicable three-year delay despite a N5bn outlay, JOSEPHINE OGUNDEJI writes

Three years and three months after announcing take-off plans, the Lagos State Government is yet to commence its proposed monthly rental scheme that was touted to reduce the burden of rent payment for Lagos residents.

Findings by The PUNCH showed that despite committing the sum of N5bn to help the project commence, the scheme has failed to kick off in any part of the state.

At the second Lagos Real Estate MarketPlace Conference and Exhibitions which was held in December 2021, the Special Adviser to the Lagos State Governor Babajide Sanwo-Olu on Housing, Toke Benson-Awoyinka, had said that the initiative of a monthly rent payment scheme would commence soon in the state ‘soon’.

She said the new initiative was going to greatly ease the burden of yearly payment on residents. Benson-Awoyinka also assured landlords in the state that they would get their annual payment of house rent upfront, while tenants would no longer have the burden of yearly payment of a huge amount of money.

She said, “Tenants can therefore use the yearly payment for other forms of investments or for payment of school fees as the burden of payment of yearly rent is taken away from them completely. So, it is a win-win social investment scheme, it is a good one and it is applaudable.”

Speaking exclusively with The PUNCH in an earlier interview in 2022, the Lagos Commissioner for Information and Strategy, Gbenga Omotoso, had said that all the necessary arrangements had been perfected to ensure the success of the scheme.

He, however, noted that although the scheme would not be available for all classes of Lagosians, those who fell within the threshold of the requirements to enrol in the scheme would no longer have to face the daunting task of having to pay a yearly rent.

Omotoso said, “The Office of the Special Adviser, on Housing, Mrs. Toke Benson (the then S.A to the Governor on Housing), is handling it and the process is very simple. It is for tenants and landlords to have a harmonious relationship, so that if you are coming into Lagos to get accommodation, you don’t have to pay through your nose by looking for a year’s rent and all that.

“So, what the government is going to do is to put down a lump sum of money. From this money, anybody who enrols in the programme can get his landlord paid yearly while he himself can continue to pay monthly.

“Some people have a regular source of income. It’s going to be like a revolving fund. So, it’s very simple and the idea is to make everything easy for people.

“If you get a house that is bigger than what you can pay for because you know that the government is going to pay the yearly rent, it won’t work. It has to be the kind of accommodation that can match your income.”

In 2022, a bill regulating the payment of rent was introduced in the Senate.

The bill was sponsored by Senator Smart Adeyemi, who was representing Kogi West and had passed one of the five required readings. The bill came amidst complaints about the high cost of rent in Abuja.

The bill made it an offense for a landlord to demand the payment of rent in advance and replaced yearly rent with a monthly plan where the first three months would be paid for, followed by subsequent monthly payments.

Traditionally, rents in virtually every part of the country are paid on a yearly basis. In some cases, the landlords even demand two-year rents upfront. This status quo has made it difficult for many Nigerians to garner the needed bulk funds to rent apartments.

The bill does not mean lower rent costs, only that the mode of payment will be different. It would, however, help most people relocating to new cities to easily pay for their accommodation as against having to resort to less-than-ideal options like hotels or squeezing-in with relatives.

Surprisingly, a social media poll conducted by Dataphyte showed that only 38.1 per cent of respondents preferred a monthly rent payment. A significant portion, 61.9 per cent, still preferred remitting their rents annually.

Sometimes tenants need a place to stay but do not want a long-term commitment. For these tenants, finding a landlord who is willing to sign a month-to-month rental agreement is ideal.

Realistically, residential tenants can seldom afford to put forth an entire year’s rent up-front. People with that amount of cash are far more likely to use it as a down payment on an owned home. Paying rent every month is much more palatable to the vast majority of tenants.

In March 2024, the Special Adviser to Lagos State Governor on Housing, Barakat Odunuga-Bakare, disclosed that the state’s monthly rental scheme will be enforced before the end of 2024 or early this year.

She stated it during a recent press briefing of the Lagos State Real Estate Regulatory Authority in Ikeja, Lagos.

 “We all see what is being done in other climes, rents are collected monthly. Hence, we are looking and hoping that before the end of the year, or by early next year, we will be able to implement the policy of monthly rental. Also, the rental would be charged according to tenants’ earnings,” she had said.

“The good part about it is that we would be test-running it first within the public sector since we can ascertain how much everybody is earning, and once we see that it works in the public sector, we can now push it out to the private sector,” added Odunuga-Bakare, who reiterated that the N5bn allocated for the monthly rental scheme was still set aside and untouched.

She added that the fact that the scheme was slow to take off showed that the Lagos State Government was still trying to perfect one thing or the other.

She noted, “The last administration that initiated the monthly rental scheme was coming to an end when the scheme was to be introduced.  Now, we have a new administration and the governor wants the scheme to come into effect by the end of this year or early next year.”

Recall that in 2021, the Governor of Lagos State, Babajide Sanwo-Olu, had said the current rental model in which people pay yearly rent in advance to property owners has become inadequate to address contemporary realities in the housing sector, especially in cities where demand for property is high and expensive.

The governor advocated a monthly rental system, which he said would be affordable to low- and middle-income earners pressured by the yearly rent obligation.

Sanwo-Olu made the recommendation at the 10th meeting of the National Council on Lands, Housing and Urban Development held in Lagos last year.

He urged policymakers to consider the suggestion and initiate a regulatory framework that would aid the transition to a new rental system.

The governor said Lagos was already working out monthly rent modalities to accommodate residents not keen on the state’s homeownership scheme.

He said, “In Lagos, we operate a very robust rent-to-own programme of five per cent down payment and six per cent simple interest rate payable over 10 years. We are working on another product, which is a purely rental system, where residents will pay monthly.”

The then Minister of Works and Housing, Babatunde Fashola, corroborated Sanwo-Olu’s position, stressing that the yearly rental system had created inequality in the housing supply and widened the affordability gap for low-income earners.

He asserted that Nigerians would see a remarkable inflationary freeze, if not a reversal when rent payments converge with monthly salary payments.

“If rents can be paid monthly when salaries are gotten you would see a (positive) change in the economy,” he stated.

In a similar vein, the Group Managing Director of Odu’a Investment Company Limited, Abdulrahman Yinusa, said the monthly rental payment method is a good one

He said, “There is a gap between employees’ ability to see money and what they want to pay. To bridge the gap, it is the employers that can help by providing a guarantee to the landlords, that when the rental money is due, the employers would deduct from the salaries and fees.

“That way, the landlords would calm down and know that their money would always come.”

Also, the Managing Director and Chief Executive Officer, Wemabod Limited, Bashir Oladunni, canvassing his support for the monthly rent payment system, said it would enable tenants to be able to meet their housing obligations.

He said, “The government needs to put in place regulations that would also safeguard the interest of landlords. Property owners also do not have mortgages at a single interest rate. So, they must have borrowed to finance the development of those assets, and for any business enterprise, you want to recoup your funds as quickly as possible to be able to develop and build more.

“It is a laudable idea. It is an institution like Wemabod that can champion such a course, looking at the kind of portfolio that we have and the fact that we are backed by six states of the federation. Furthermore, we are exploring this option as part of our strategic plan to expand our housing portfolio by 500 units over the next five years.”

On the flipside, experts have argued that short-term leases are unstable. The flexibility that renting month-to-month gives the tenant also applies to the landlord. Neither of you are locked into a long-term contract, so there’s nothing preventing your landlord from raising your rent or terminating your lease while you are living in the apartment.

According to NigeriaRealEstateHub, landlords generally prefer longer apartment leases because it ensures they would not have to spend money or time turning the unit for the next year.

Each time a tenant moves out, the property owner has to advertise the unit and get it ready for the next tenant, which can include cleaning, painting and fixing any wear and tear.

Similarly, a real estate research company, Estate Intel, believes that when rents are paid monthly, there is a greater chance of tenant churn.

This means periods in which the rental units are unoccupied may rise. Since the current dynamic makes the rental space a landlord’s market, they have the ability to put the security of their income first. The annual upfront payment reduces the administrative cost that may otherwise be expended in managing or following up with rental payments.

There is also the potential loss of monthly revenue if the landlord cannot fill the unit quickly. Ultimately, short-term leases are not as cost-effective and are riskier for property managers to offer, which is why you do not see them as often.

As the market evolves, some landlords are willing to make their properties available to monthly renters. A big concern for them, however, is avoiding defaults or at least understanding and verifying a prospective renter’s financial capacity.

An EI report also notes that within Nigeria, the credit system is only just developing, and central credit agencies that can provide quick ratings for renters or validate their ability to pay consistently are yet to go mainstream.

Conversely, in western economies, these credit ratings and systems form the basis of welcoming a new tenant and it makes it easy to extend that trust. Although there are new technologies trying to solve this problem such as Mono and a few other agencies, some landlords still see it as a leap of blind faith.

In a recent interview, the Lagos State Commissioner for Housing, Moruf Akinderu-Fatai, acknowledged the severity of the rental problem.

He, however, made it clear that arbitrary rent hikes are not just a Lagos issue but a nationwide challenge.

According to him, the administration of Governor Babajide Sanwo-Olu has been proactive in addressing the housing deficit, which is a major driver of high rent.

The Commissioner said, “On monthly rental, the state government has been working on this challenge. It is an aberration to demand yearly rents from tenants in a country where workers earn their salaries monthly.”

He attributed this practice to supply and demand forces, emphasising that the high demand for housing, coupled with limited supply, allows landlords to dictate rental conditions.

“This practice is thriving because we have a very huge demand and a very low supply of affordable housing,” he noted.

To address this, Akinderu-Fatai said the government was engaging real estate developers, estate agents, and financial institutions to explore ways of reintroducing monthly rent payments, adding that the state was also facilitating access to affordable mortgages with interest rates of no more than 10 per cent over 20 years.

He said, “This government has been discussing with the general real estate practitioners, such as developers, realtors and estate agents. We are engaging their leadership to first work out how we can go back to the era of paying rent monthly.

“We are also encouraging developers to do more in low-income areas.  Some financial institutions are also working with us to build affordable mortgages of at least 20 years at highest 10 percent interest.

“We recently signed a memorandum of understanding with Access Bank Group. We are also helping some developers’ access loans to build houses purely for low-income people.”