ABSTRACT
Choosing a tenant is a key issue in the housing rental market. Knowing, a priori, whether a tenant will pay the rent on time, be able to hold a good relationship with the neighbors or take care of the property (i.e. whether s/he will be a “good” tenant) is not a simple endeavor. It is crucial, however, as it can help save time, money and conflicts that can end up in court. This study aims to address the effectiveness of tenant’s selection in Osogbo Residential Property Market. Simple random sampling technique was used in participant selection because of the difference in the characteristics of the samples. A total of 545 respondents who were either tenants residing in multi-tenanted low-income residential properties, estate surveyors and valuers, and some property owners were randomly selected. Only 230 out of the participants responded, representing 100% of the distributed questionnaire. Being a survey design that tested the correctness of the observed frequency of responses, percentage distribution was initially used to describe the pattern of responses of the participants while non parametric binomial test statistics was used to test the statistical significance of the observation. Results of the study revealed that a significant number of the participants do not know what property management practices are and therefore it is not sought for or used. The importance of a correct classification and selection of tenants, and the evaluation system created can serve as a decision support for the decision making of landlords and real estate agents. The research concluded that property management is as important as property development as the lack of it eventually diminishes the national housing stock, apart from constituting a waste of scare economic resources. This is because effective property management takes into consideration the tenant selection process, to promote better living relations and conditions.
CHAPTER ONE
INTRODUCTION
1.1 Background of the Study
The recent economic crisis significantly affected Europe, driving down almost all economic activities; and the real estate industry was no exception. This is of relevance, because the real estate market not only has an undeniable importance for economic development, but is also a cornerstone of other economic activities: the real estate market provides shelter to other domestic services (Goodhart & Hofmann, 2007). Although signs of recovery from the crisis are beginning to emerge, the unique characteristics of the conjuncture it created in the real estate market cannot be overlooked, namely: a lack of liquidity; heterogeneity of assets; and decreasing sales in almost all segments of the real estate industry (Cheng, Lin, & Liu, 2008; Lin & Liu, 2008; Cirman, Pahor, & Verbic, 2015). In the residential rental market, in particular, understanding these unique characteristics is important to ensure minimum rent/price volatility, regardless of the economic conjuncture.
Although it is the foundation of almost all the other markets, the real estate market is quite distinct from other economic activities, in particular due to “the fact that its ‘product’ is not portable” (Case, Goetzmann, & Rouwen- horst, 2000, p. 2). Yet, as noted by Carter (2011, p. 159), “acquiring shelter is an economic activity in which virtually all members of society participate, either in the rental or owner-occupied markets”. This is true not only of individuals, but also organizations, such as firms, hospitals, police departments, government buildings and farms, among many others, that depend on the real estate market to physically exist. The real estate market is not only a basis for other economic activities, but also plays a decisive role in the world economy. As Poterba, Weil, and Shiller (1991, pp. 145-146) note, “house prices are of more than conversational interest to economists. Owner-occupied housing accounts for a greater fraction of household net worth than corporate equity. (…) Movements of real house prices have large effects on household wealth, and potentially on consumer spending. High house prices relative to buildings costs also call forth increased construction activity and channel resources to the building sector”. The real estate market can thus impact people’s lives, families, companies, as well as banks (cf. Goodhart & Hofmann, 2007), and may arguably be considered the most important market of all.
In broad terms, the real estate market refers to the trading of real estate (Maier & Herath, 2009), and can assume three main forms: (1) commercial (e.g. warehouses and re- tail stores); (2) industrial (e.g. factories, mines and farms); and (3) residential (e.g. undeveloped land, houses and town- homes). Within the last form (i.e. residential), there are two options: sale and rent; and the decisions surrounding them are not always easy. Hjalmarsson, E. and Hjalmarsson, R. (2009, p. 215) note that “the buy versus rent decision is a very large one for most households, and may depend on many factors, not all of which are of a financial nature”. The focus in this study will be on the rental market.
Within this submarket, the tenant can plausibly be considered the most important stakeholder, because s/he:
(1) serves as the property’s source of financial income; (2) interacts with other market players, such as landlords, other tenants and real estate agents; and (3) is the one responsible for taking care of the rented property. It is easy to see, then, why tenant choices matter. No landlord wishes to bear the problems that a “bad” tenant can bring, in particular since the relationship between tenant and landlord is often expected to be long term. In fact, it begins before the contract is even signed, and continues through rents paid, services and upgrades, until the tenant leaves (Lars- en & Sommervoll, 2009; Gbadegesin & Oletubo, 2013).