AN EXAMINATION OF THE EFFECT OF LOCATION ON RENTAL VALUES OF RESIDENTIAL PROPERTIES
Background to the Study: Residential properties are both consumption and investment good (Sratton, 2008). As consumption good it is acquired for owner occupation. Also, the investment (property) may be to maximize optimum return from outright sale or letting. If this is the case, the price of the residential property becomes very important to the landlord and the occupants. Hence investment in this type of property is regarded as a considerable source of wealth for many individuals. The physical characteristics of the property such as number of bedrooms, age, size, various amenities and services have been noted to help determine the rental price for landlords as they set rental prices for residential properties. In addition, external factors such as population, income, traffic congestion, proximity to work, access to public transportation, proximity to higher institution and environmental characteristics may have significant impacts on rent (Oni, 2007).
Therefore, any serious investigation into the nature and behavior of residential property price should recognize that property as a commodity is not a single good, but a complex bundle of services or potential services which operate in many dimensions (Oyebanji, 2003).
Nigeria has a large real estate market that is untapped due to limited circulation of information about property characteristics, their actual value and their impact on market values, organizations, available properties and professional services available in various locations nationwide. As real estate consultants and practitioners market their properties, they recognize that in order to generate success, their information must be well circulated and this information should be available, accessible, reliable and affordable to the property buyers, sellers and investors with speed, precision, accuracy and at the magic moment when the client needs the information.
The impact of location in housing market is very significant. Since housing units are fixed in location, they differ in terms of their surroundings, the kind of community in which they are located, and their nearness to employment and shopping places. Location also means that a dwelling's surrounding is possibly of great importance in affecting its value. For decades, real estate property was generally seen as a legacy a parent bequeaths to the offspring. However, with the realization that real estate is a major source of capital appreciation and a good hedge against inflation, the real estate market is coming close in popularity and importance to the money and capital markets.
Today, real estate property constitutes a significant index in man’s wealth. As economic activities have achieved more sophistication over time, real estate has continued to play a central role in their development. In Lagos State, the rental values of residential properties has shown an upward pattern over the years. This is because Lagos is the largest city in Nigeria, located along the West African coast. The entire Lagos metropolis has 9,197 roads consisting of carriageways, cul-de-sac, lanes, streets, avenue, ways, and crescents (Lagos Street, Map, 2008). Besides, the huge financial transactions involved, high property demand, the ever increasing population and the limited supply mainly in major cities such as Lagos, Ibadan, Abuja and Port Harcourt has made the real estate sector susceptible to abuse by many dishonest property developers, greedy landlords, unregistered agents and swindlers who engage in several illegal practices to the detriment of the practitioners, citizens, foreigners, stakeholders and the noble profession (Agunbiade, 2013).
In recent past, investors have diverted their funds into real property development because of the security of returns and the profitability of the market (Kauko, 2003). In addition, because of the high competition in the residential property market, there has been expansion and improvement in the quality of residential properties provided by the investors to meet demand.
A number of factors affect residential property values in Nigeria. These include location, demand and supply, accessibility, institutional, economic factor among others. Nevertheless, there is still a short fall in the market leading to increase in rent and capital values (Eriki & Udegbunam, 2008).
Regardless of these advantages, real estate practitioners, financiers and investors in residential properties are faced with dearth of data on the effect of location on the value of residential properties and what level of rental income a development project could reasonably be expected to realize in a transaction involving willing and able parties.