A COMPARATIVE ASSESSMENT OF THE PERFORMANCE OF INVESTMENT IN TENEMENT BUILDINGS AND 2/3 BEDROOM FLATS IN SELECTED PARTS OF LAGOS METROPOLIS

A COMPARATIVE ASSESSMENT OF THE PERFORMANCE OF INVESTMENT IN TENEMENT BUILDINGS AND 2/3 BEDROOM FLATS IN SELECTED PARTS OF LAGOS METROPOLIS

                                           BY

                              KUYE OLUSEGUN & EMEKA COLLINS

ABSTRACT

The larger proportion of Lagos urban population falls under the low income group. Some estimates indicate that well over 70% of the urban population can only afford to rent tenement buildings due to their associated problems. With this, one can only begin to understand a developer’s dilemma when confronted with the huge demand for such buildings and the expected yields derivable from such investments, considering that optimum returns is the major driving force behind the real estate sector. This study attempts to appraise the performance of tenement buildings vis-à-vis 2/3 bedroom flats in Mushin and Oshodi-Isolo areas of Lagos. A literature review of various articles on the subject matter was embarked upon, tracing the history of tenement buildings in various parts of the world; their major disadvantages and advantages; and two contemporary appraisal methods used in determining the viability of proposed development projects. The study relied mainly on primary data obtained through a survey of estate agents, landlords and tenants in the study areas to estimate the movement in rental values and yields of tenement buildings over a five year period. It was found that tenement buildings still rank lower than flats in terms of investment returns. New improved houses with the advantages of tenement buildings were recommended to be developed to help reduce the problem of housing the urban poor.

KEY WORDS: Tenement buildings, 2/3 bedroom flats, investment, feasibility & viability studies

INTRODUCTION

With an estimated population of over seventeen million people and a growth rate of 8% per annum (UNCHS, 2004) a steep rise in the urban population of Lagos is inevitable. This large population figure gives a hint of the great demand placed on the residential property market in the state. However, with the various options in terms of residential property types open to an investor in the residential property market and the fact that a greater percentage, of about 70%, of the Lagos urban population live within the low income bracket (FOS, 1995), it becomes necessary to ascertain whether investment in tenement buildings would be feasible and viable.

Formal housing supply remains incapable of providing the housing needs of the country’s teeming population, and some developers of residential properties are faced with the options of developing detached houses, semi detached houses, and blocks of flats for single family households on the one hand and, on the other, tenement buildings for low income households. With optimum returns on investments being the major reason for such investments and the larger number of the urban population’s income tending to favour tenement buildings, it becomes necessary to study the practicability and profitability of tenement buildings as property investments.

Statement of problem

It has been predicted that Lagos will be the third largest city in the world by 2015 if its current growth rate is maintained (UNCHS, 2004). With the greater percentage of its entire population being in the low income group, some scholars have suggested that construction of more improved tenement buildings be examined as a housing option for the low income majority (Andreasen et al, 2006). However, is developing a tenement building in Lagos feasible and economically viable from purely an investment point of view with optimum returns on investment the main aim of investment?

It is evident that both formal and informal housing supply in Lagos is inadequate to meet current demand and most newly constructed single family houses are beyond the reach of many residents of Lagos. This leaves a gaping hole in the housing supply for low income households. Since the tenement buildings has for many years been the predominant form of accommodation in most areas of Lagos, a prudent investor would be wise to consider if erecting one would be viable to satisfy the housing needs of Lagos urban population.

Aim and objectives

This study aims at finding out the feasibility and viability of developing tenement buildings in the Mushin, Oshodi/Isolo, and Shomolu areas of Lagos State. The centre piece of this study is to find out if investing in the development of a tenement building in selected areas of Lagos is feasible and profitable. The annual rental and capital values from tenement buildings in the study area would be used to estimate the returns on residential tenement investments to appraise the viability of developing tenement buildings in Lagos.

To achieve this, the following objectives have been set:

1. Collecting data on the current capital and rental values of tenement buildings and flats in selected areas of study; and
2. Determining, through analysis of market transactions, returns on tenement property investments and their level of profitability.

Significance of study

With the withdrawal of government from the provision of housing for the urban population, housing delivery is now being provided almost entirely by the private sector where maximization of profit is the major incentive for investments. However, there is a great demand for tenement buildings from the low income group which makes up the greater part of the urban population in Lagos. The developer who realises the high demand for residential properties by the low income group is faced with the choice of also investing in other forms of properties for the middle or high income groups. Since a high turnover remains the major aim of the investors, a study of the feasibility and viability level of tenement buildings in Lagos thus become necessary.

Contribution to knowledge

The estate surveying and valuation profession is concerned with the direction and supervision of various interests in real estate properties with the aim of securing optimum returns which could either be for profit, prestige or any other reason for which property could be held (Thorncroft, 1976)). Among the many functions of the Estate Surveyor and Valuer is the determination of the kind of property investments that would yield a secure income over a given period of time at a minimum cost. Statistics showed a high demand for residential properties from the low income group in Lagos. Hence, this study will help in providing a reference point for practising Valuers that are faced with challenge of suggesting forms of residential investment properties for their numerous clients. The study will also provide a hint on the relevant feasibility indicators to look out for when considering the feasibility and viability of various projects.

THE CONCEPT AND HISTORICAL DEVELOPMENT OF TENEMENT BUILDINGS

Wikipedia (2008) defined a tenement building as “an apartment building in a multi-unit dwelling made up of several apartments or rooms”. Bayzid (2006) defined a tenement building as a dwelling which is divided into small and cheap dwelling units occupied by different individuals under the same roof with the occupants sharing common facilities and services. They are accommodation units or rooms within a building block sharing common conveniences and services such as kitchens, toilets and bathrooms. Most of the different types of tenement buildings found in urban areas are usually occupied by people in the low income group (Olusegun, 2003).

For centuries, the tenement building has provided dwelling accommodation for people in many parts of the world. The first forms of tenement buildings could be traced back to 10th century Europe. In ancient Rome tenement buildings were developed for the lower and middle classes of Romans. The floor at ground level of these buildings was used for shops and businesses with living space on the higher floors which could reach up to six or seven stories. Medieval Egypt was noted to have had residential buildings that could reportedly accommodate hundreds of people as early as the 10th and 11th centuries. Cairo in the 16th century had high-rise apartment buildings where the two lower floors were for commercial and storage purposes and the multiple stories above them were rented out to tenants. Tenement buildings built around this time in Yemen were of mud bricks and were reportedly up to 30 metres in height. Similar styled buildings were said to exist in parts of Asia such as China and Japan during this same period (Wikipedia, 2008).

Towards the end of the 19th century similar forms of buildings began to appear in Britain, Scotland and America. One style that is common in parts of New England has three levels where each floor is more or less similar to the floor below. This was popular within the lower income areas and areas with high immigrant populations. In the United States of America, ‘tenements’ is a label usually applied to the less expensive, more basic rental apartment buildings in older sections of large cities. The ones built before 1901 were built specifically for multiple working class immigrant families. Artsege (2008) describes these buildings as dirty, dark, unheated, and dangerous places which became a breeding ground for outlaws, juvenile delinquents and common thieves. There was no running water within the building and no electricity. The bathroom was located in the rear yard, and these had no baths or showers. It was not until the 1901 Tenement Act was passed that better construction of houses, as well as lighting, ventilation, and toilet facilities were standardised and living conditions improved (Wikipedia, 2008).

In Scotland, the term ‘tenement’ refers simply to any block of flats sharing a common central staircase inhabited by a wide range of social classes and income groups. They were the predominant type of housing in Scotland’s industrial cities during the 19th century. Most of these today are occupied by young professionals, older retiring people, and students. The early prototypes housed large extended families who lived in extremely cramped conditions.

In Bangladesh, tenement houses in various forms and names initially built as low-income housing or as dormitories for workers can be found in many cities (Bayzid, 2006). In early industrial cities these were built as cheap accommodation for the workers by their employers. However, in recent times when new industries are being set up away from the core areas, the old industrial zones near the city cores became rundown areas. Households from the high- and upper-middle-income groups only could afford to move out of these areas. Thus these dormitories were gradually converted into small family units soon to become popular and acceptable to the low-and lower-middle-income group. Bayzid (2006) reports that with the increase in the number of immigrants to Bangladesh, the commercial and industrial potentials of the country’s cities attracted a large number of migrants and other less-skilled working people. This led to the evolution of tenement building in that country.

In Africa, pockets of tenement buildings, generally referred to as Brazilian houses still exist. Brooke (1987) reports that Brazilian architecture in Africa is a legacy of thousands of freed slaves who returned to West Africa in the 19th century. The style can be found today in a crescent of West African nations, marking the points where freed men landed in the 19th century: Freetown in Sierra Leone, Cotonou and Porto Novo in Benin, and Badagry, Lagos and Calabar in Nigeria. These types of buildings can still be found in many parts of Africa, albeit in different forms. Aside from the Nigerian ‘Face-me-I-face-you’, there is the Swahili house common in coastal East Africa which has a four to six roomed structure, and the compound houses of Kumasi and Accra in Ghana. These have an internal corridor, on the front of the plot as well as a courtyard flanked by utility rooms in the rear.

Warah (2003) opines that the presence of tenement buildings in most cities of the world is as a direct result of the housing shortages in those cities, especially in developing countries. As a result, the poor resort to sub- standard housing in the informal sector. Sharing of essential services and public spaces is an effective way of reducing the housing cost as these would allow a reduction in the size of the dwelling units and in the number of service outlets

Originally, most tenement houses in West Africa were intended for occupation by a single family group, either as a single large household or as several households who cook for themselves but share many communal activities. They now represent the traditional forms of multi-household housing in their local cultures. Andreasen et. al. (2006) differentiate among four categories of tenement buildings in West Africa. These are:

1. those occupied by mainly co-inheritors;
2. those occupied mainly by tenants;
3. those dominated by a family head as owner, who selects those in the family who should occupy the available rooms; and
4. those with a caretaker who cares for the house, protects the rights of those who hold rooms, and collect rents from tenants.

Urbanization and the desirability of tenement buildings in metropolitan Lagos

Urbanization is a trend which is taking place around the world, and the rate of growth of the urban population in Africa, at 3.5 per cent per year, is the highest in the world (UNCHS, 2004). The demand for tenement houses, which has long met the needs of the low income households and population urbanisation, has continued to rise. This demand is primarily driven by demographic trends and the extreme scarcity of public and inadequate private resources in the housing sector. Since the majority of the low income group in urban areas provide crucial services that may not be easily available through the formal sector, Andreasen et al (2006) suggests that there is need to develop new forms of housing in urban areas that combines the desire for modernity with the advantages of tenement houses, such as flexibility, low cost, suitable areas for outdoor cooking and suitable for multi-habitation, including renting of rooms. Warah (2003) opines that since the majority of the low income groups in urban areas provide crucial services that may not be easily available through the formal sector, it would do a whole lot of good if their housing needs are met by the development of appropriate house forms that aims at improving their living conditions.

For the purpose of this paper, and in the context of urban Lagos, a tenement building, popularly called “Face- me-I-face-you” in Lagos, is a form of residential property made up of accommodation units in rooms and sharing common conveniences and services such as kitchens, toilets and bathrooms. Andreasen, et. al. (2006) stated that these forms of houses are widespread in West Africa and have been for centuries. The traditional form of tenement buildings have the same size of rooms of about nine or ten metres square. Most kinds have an internal corridor leading to the rooms with utility rooms in the rear. Here women do their cooking, wash their clothes and carry out other home-based commercial enterprises. Furthermore, latrine and bathroom facilities are to be found here (Lekule, 2004). According to Njoku (2007), tenement buildings can be found in all the major cities of Nigeria and offer accommodation to the greater majority of urban dwellers, particularly those living in the slum neighbourhoods. He posited that people live in tenement buildings because that is what they can afford.

Tipple (1995) in listing the advantages of tenement buildings posits that since the tenement form of housing is relatively cheap to build and generates generous developmental benefits through multipliers and linkages, it is likely to be good value for money. Other advantages of tenement buildings include low construction cost, independent living at low cost, social welfare and control, and suitability to tropical climates (Andreasen et al, 2006).

1. Low construction cost: Tenement buildings in their classic form are relatively inexpensive to build, both per room and overall. Andreasen, et. al. (2006) claims that one room built in a tenement building costs approximately one third of a room in a typical block of flats. This difference in costs arises from the construction method and materials used. A block of flats tends to be of reinforced concrete post and slab construction, expensive bathroom fittings, iron gates and rococo balusters. On the other hand, tenement buildings can be built with cement blocks only and by small scale, informal sector contractors who dominate housing supply in

2. Independent living at low cost: The room arrangement in tenement houses provides a degree of independence at minimal Relatives living together in a detached house or flat would probably have to share food with the host household. However, in tenement buildings, households can find very low cost accommodation without sharing cooking arrangements with others. For single workers just arrived to major cities, young families and students, tenement houses provide cheap accommodation.

1. Social welfare and control: Amole, et. al, (1993) opined that tenement buildings provide a good context for supporting the weakest members of society and offers some social control. The single entrance to most tenements provides good security and rooms facing each other provide a good environment for mutual assistance. Andreasen, et. al. (2006) noted that such mutual assistance also exists among tenants of mixed ethnic groups. The internal division of the tenement houses reflects balanced communities within a building where they live in a coherent manner irrespective of socio-demographic and economic Tenement houses could also provide a medium through which the elderly can derive satisfaction and status from the role of ‘father’ or ‘mother’ of the house and also help aggrieved occupants resolve problems.

Lack of privacy and prestige, frequency of conflicts, overcrowding, potential health hazards and strain on services are the major disadvantages of tenement buildings (Andreasen et al, 2006).

1. Privacy: Privacy can be a problem in tenement buildings as the traditional tenement building is designed in such a way that no one can have a visitor without other residents knowing and the kind of food eaten by a particular household is known by others in the compound. Adeola (2009) reported that it is not uncommon to see families of eight persons cramped in a single room in a tenement building. This is an evidence of overcrowding too.

2. Prestige: In virtually all parts of the state, there is an apparent desire to appear modern and progressive, especially among the young who are a major part of the urban population. Tenement buildings are regarded by the younger generation as old fashioned and are seen not to bestow high status on its occupants.

3. Conflicts: Sharing courtyard spaces and services often leads to quarrels and sometimes fights, which is one of the main issues influencing households to prefer individual living. The obligations to share services, such as water supply and toilet is a disadvantage in most tenement buildings. Many tenement buildings are without these facilities within the premises and must use public water taps and toilets within the neighbourhood.

4. Potential health hazards: Most toilets in tenement buildings are often at times in a very poor state and from these a constant over flow of excreta is seen. A bathroom is mostly provided as a simple enclosure, often open to the sky, where water must be provided in a bucket. The grey water from the bathrooms is discharged directly into open drains in the The associated health implications of these practices are serious, especially as bathrooms also serve as a place for urinating (Frantzen and Post, 2001).

5. Maintenance problems: Another disadvantage of tenement buildings is the problem of building One tenement building could have up to fifteen tenants all with equal rights. With this diffusion of interests it becomes common for occupants and owners alike to avoid responsibility. This avoidance of maintenance has, in some cases, led to the deteriorating and subsequent collapse of the buildings (Ryslinge, 2003). The generally poor state of maintenance of most tenement buildings reinforces its poor reputation.

6. Ability to extend: The tenement form of housing can be difficult to extend. Chokor (2005) describes how tenement houses in the south-west areas of Nigeria have been added to and divided up until the areas in which they occur are chaotic and overcrowded. When all four sides of a compound are fully developed, rooms are sometimes added to the outside, into the streets, and even to the This reduces the size and usefulness of the courtyard space. In addition, it spoils what little ventilation is offered by through draughts available in single-banked ranges of rooms.

Investments in tenement buildings and the significance of their appraisals

To a person who wishes to forgo current consumption and invest his resources for expected future incomes or capital gain, many investment opportunities exist. These include investments such as treasury bills, government and company bonds, shares and stocks, real estate, life insurance, mutual funds, annuities, certificates of deposits, etc. (Geltner & Miller, 2006). Of these real estate investments have the added advantages of being an ideal hedge against inflation, maintaining its real value, and qualifying for special tax treatment advantages that leaves investors with lower tax loads than would the other investment alternatives (Olusegun, 2003).

The various forms of real property investments include residential, commercial, industrial, agricultural and recreational investments. Of these, the residential and commercial sectors are the major sectors in Nigeria, with the residential sector being the fastest moving sector. The demand for middle and low income housing always outstrips supply. This has been attributed to the government’s little, and continued decline of involvement in the provision of housing (Olusegun, 2003). As a result of this, investors in real estate property are assured of a higher security of income flow and capital.

Investments in properties used as dwelling accommodation are usually of various designs include detached houses, semi-detached houses, terraced houses, flats and tenement buildings. Detached houses have the best prospects in terms of investment proceeds. However, only a small fraction of the urban population can afford to own or rent these houses (Tipple, 1995). Flats, depending on location, rank lower to houses in terms of investment prospects but are better than tenement buildings. However, tenement buildings have long provided the accommodation required by the majority of the low income population in most West African cities, and still remains the most affordable form of accommodation for this group (Andreasen et al, 2006). According to Egho (1997), the need for, and the significance of an investment appraisal lies in the need for an investor to be informed beforehand of the likely constraints and obstacles that could militate against the implementation of an investment proposal before he commits his valuable resources into the investment. This forms the basis for decision making in the channelling of capital resources into investment opportunities.

Holfstrand and Holz-Clause (2006) stated that an investment appraisal is an effective way to safeguard against wastage of further investment resources. Among their reasons for conducting a feasibility study include giving focus to a project and outlining alternatives, bringing up new opportunities through the investigation process, providing quality information for decision making, and helping in securing funding from lending institutions and other sources. If properly conducted, the investment appraisal may be the best investment ever made (Egho, 1997). Geltner and Miller (2006) explained that property investment appraisal involves the analysis of expected monetary benefits that are associated with the acquisition and development and/or ownership of a property in order to assess investment profitability and feasibility. This analysis refers in general to the analysis of real estate markets, investments and specific properties.

THE RESEARCH DESIGN

In order to achieve the objectives of this study,   the owners/caretakers and tenants of tenement buildings and flats in the study areas were surveyed and the data generated was used in analysing the viability of tenement buildings in Lagos. This was done using the longitudinal survey design to determine the trends in yield from tenement buildings and flats for a period of five years (2005-2009). This involved determining the changes in the rental yields of tenement buildings and flats as variables of study at different points in time for a period of five years.

Data types and sources

The data for this study was collected from primary and secondary sources. The primary data was obtained from estate agents, tenants and owners of tenement properties and blocks of flats in the study areas. The secondary data adopted in the study was obtained through literature review from relevant textbooks, journals, lecture notes, and online libraries. The secondary data was utilised to establish criteria and theories against which the empirical research of the primary data was measured.

This study relied on structured survey of personnel from estate agencies, owners and occupiers of selected tenement buildings and blocks of flats in the study area. Two different sets of questionnaire were designed. One was used to elicit information from owners and caretakers of tenement houses and blocks of flats. Information sought included year of commencement of tenancy, commencement rent, the equivalent of number of years’ rent paid as lump sum before moving in, current rent, property type and accommodation details. Data obtained from this aspect of the survey allowed an estimation of movement in rental yields from the classes of residential properties being studied. The second questionnaire was designed and used to seek similar information but from occupiers of the selected tenement buildings and blocks of flats on year of commencement of tenancy, commencement rent, advance rent paid, current rent, accommodation details, among other information.

A combination of 20 estate agents and property owners were surveyed, while 100 occupiers of tenement buildings and blocks of flats in the study area were surveyed. The sampling procedure of tenants, landlords and caretakers of tenement buildings and flats in the areas of study involved the random selection of properties located in the areas of Mushin, Oshodi, Isolo and Shomolu, which were considered to be areas with a high concentration of tenement buildings within the study area as suggested from interviews with local estate agents.

The study areas

a. Mushin: Mushin is a suburb of Lagos. It is located at about 10km north of the Lagos city centre, adjacent to the main road to Ikeja. With an estimated population of over 630 000 people, Mushin is the fourth largest area in Lagos. It is a largely congested residential, commercial and industrial area with inadequate sanitation and low quality housing. Its major inhabitants are the Yorubas and Hausas. The major towns making up Mushin include Idi-Oro, Papa Ajao, Ilupeju, Matori, Ladipo, Idi-Araba, and Mushin has about three industrial estates. These are Matori Industrial Estate, Ilupeju Industrial Estate and Aswani Industrial Estate. Mushin also has many markets, among which are the Ladipo Automobile Market, Ojuwoye Market, Aladesunu Market and Daleko Market. Aside from these markets, a good number of retail shops, restaurants, and drinking bars adorn every street in Mushin. Mushin is also the home of the Lagos University teaching hospital (LUTH).

b. Oshodi-Isolo: Oshodi-Isolo is located on the North-east of Lagos state. It covers a land area of about 9 km and has a population of over 620 000 inhabitants making it the fifth largest area in Lagos. It shares borders with Ikeja on the North, Onigbongbo on the North-East and Mushin in the South-South East. Oshodi-Isolo is a cosmopolitan town dominated by mainly the Ibos, Hausas, Yorubas and, to a lesser extent, foreigners from the west African sub-region. The major towns that make up Oshodi-Isolo include Oshodi, Ewutuntun, Shogunle, Mafoluku, Isolo, Ilasamaja and Okota.

Oshodi has one of the busiest intercity and interstate transport terminuses in Lagos state. A large number of retail shops, artisan workshops, restaurants and other entertainment outlets adorn the streets of the areas. Industries to be found in the area include large textile mills, bottling companies, pharmaceutical companies and other manufacturing companies. Also to be found within the state are some of the branches of the major banks in the country. The Lagos State Polytechnic and Isolo General Hospital are also located within the local government area.

c. Shomolu: Shomolu is one of the 20 Local Government Areas in the Lagos Created in 1976, with a current population in excess of 400 000 inhabitants, Shomolu now has about 8 wards covering a land area of about 99 sq. km. the area is bound by Yaba in the south, Bariga in the west and part of Akoka, Basua, Obanikoro, Pedro Village, Onike, Ikorodu Road and Mushin. The major towns (wards) that make up Shomolu Local Governemnt Area are Onipanu, Bashua, Ijebu-Tedo, Orile Alade, Bajulaiye, Igbari and Fadeyi/Igbobi. The major inhabitants of the area are the Yorubas with an appreciable number of the Hausas and Ibos. Most of these inhabitants fall within the lower-middle income and low income group. Shomolu is famed for its printing presses, which are scattered on virtually every street. It is also home to branches of some of the top commercial banks in the country. Its major markets are the Alade, Adebayo, Olaleye, Shomolu Model Market, Onipanu, and Bajulaiye markets. Lots of small retail shops can be found on every street. The major forms of houses in the areas are blocks of flats and tenement buildings built in the mid 20th century styles.

Method of data analysis

Since the    rental yields of tenement buildings and flats are to be compared to find out their degree of variation, if any, over a period of time, the Student’s t-test, which is particularly designed for the comparison of two means, was the appropriate statistic to estimate.

The t-test assesses whether the means of two groups are statistically different from each other. This analysis is appropriate whenever one wants to compare the means of two groups, and especially when their variances are not far from equal. If the variances are far from equal, one would use Welch’s t-test for unequal variances. The decision rule in using the Student’s t-test is to reject the null hypothesis if the observed t-statistic is more than the critical value of t at 0.05 level of significance and (n₁+n₂ -1) degrees of freedom.

A further comparative analysis of rental yields from tenement buildings and flats would be done using the coefficient of variation to find out if the yields from tenement buildings vary significantly from yields from flats within the years of study (2005-2009). This process would involve finding:

1. the mean rental yield of tenement buildings and flats respectively for the five years period;
2. the variance of each years rental yield from the mean rental yield for each class of property;
3. the standard deviation by finding the square root of the computed variance; and
4. the coefficient of variation which will be used to compare the rental yields from tenement buildings to that from flats for the five year period. This would be done by expressing the standard deviation as a proportion of the mean.

Rental Yield

The rental yield for each period was computed using the formula

Rental yield =     Net rental income  

                                 Capital value           x 100%

These would be further adjusted to reflect advance payments made by the tenants to their landlords using the formula:

           in (x)                

Adjusted rent =           1 + i – (1 + i)^1-n

                                              in(x)     

Where,

x = quoted annual rent

i = appropriate discount rate, and

n = number of years for which rent advance is paid.

The average inflation rate for the years 2005-2008 will be adopted as the discount rate.

DATA PRESENTATION AND ANALYSIS

Distribution and collection of the questionnaire

The questionnaires were directed towards three groups: occupiers, owners and estate agents of tenement buildings and blocks of flats. The questionnaires were distributed to a random sample of 60 tenants, 22 estate agents and 18 property owners. The tenants sampled comprised of occupiers of rooms and room and parlour with shared toilets and baths, and occupiers of 2-, 3- and 4-bedroom flats in the study area. Owners of properties surveyed were made up of owner-occupiers of tenement buildings who also doubled as estate agents of their properties. The estate agents were informal agents who were mainly active in the tenement building market in the study areas.

As shown in table 4.1 above, 80 (81.6%) questionnaires were returned completed. Of these number, 47 (47.9%) were from occupiers; 18 (18.4%) from estate agents and 15 (15.3%) from property owners. Most of the occupiers of rooms in the tenement buildings identified themselves with informal occupations such as trading, artisans, driving, and formal activities such as teaching, civil servants, etc. Occupiers of flats were mostly civil servants, bankers, accountants, traders, self employed persons, etc. Income groups varied from tenements to tenements and flats. About 57% of the occupiers of tenement buildings earn between N15,000 and N25,000 per month; 18% earn between N5.000 and N15,000, while 25% earn between N25,000 and N35000. 83% of occupiers of blocks of flats earn above N50000 while about 17% earn between N35000 and N50000 per month.

Rental performance

The survey of occupiers, owners and agents of tenement buildings and flats yielded data on rental values (in average terms) which enabled estimates of rental changes to be made over the study period (2005-2009). Table

• below presents some of these analyses for tenement

Table 4.1:

Rental performance of rooms and room & parlour accommodations

Source: Field survey, 2009

As can be seen from the table 4.1 above, rental values of single rooms (with shared toilets/baths) have remained relatively stable over time. Rents increased from N24000 p.a. to N26400 p.a. (10%) from 2005 to 2006; from N26400 p.a. to 30000 p.a. (13.6%) in 2007 where it has remained stable for the 2007-2009 period. However, the growth rates of room and parlour accommodations with shared toilets/baths have been reducing in real terms during the study period. Rents rose from N42000 p.a. in 2005 to 48000 p.a. in 2006, showing a growth rate of 14.3%. In 2007, it further rose to N54000 p.a. at a growth rate of 12.5% and a further increase of N6000 bringing the current rental value to N60000, a growth rate of 11.1% from that of 2007. Considering the rental growth for 2005-2009 periods, this puts the overall growth rate at 25% for the five year period.

The rental values of 2-bedroom and 3-bedroom flats were found to be increasing overtime, with minor fluctuations in the growth arte. Table 4.2 below presents the results of the estimates. From the table, it can be seen that the growth rate of the rental value of 2-bedroom flats dropped from 10.0% for the 2005-2006 period to 4.5% for the 2006-2007 period. Rental value of 3-bedroom flats grew by a rate of 8.0% for the 2005-2006 periods to 16.7% for the 2008-2009 periods with fluctuations in 2007 and 2008. Taking the five years together the growth rate stands at 25.0% for 2-bedroom flats and 40.05% for 3-bedroom flats.

Table 4.2: Rental performance of 2-& 3-bedroom flats

Source: Field survey, 2009

Capital value analysis

The survey of estate agents in the study are led to the compilation of capital value changes over the five year period for tenement buildings and blocks of flats. Table 4.3 presents the results of the analysis.

Table 4.3: Capital value analysis of tenement accommodations

Source: Field survey, 2009

The table 4.4 below presents the asking prices of a 20 and 24 room tenement building with shared toilets and bathrooms on two floors for the 2006-2009 period. As the table indicates the capital value growth of the tenement buildings have grown from 25% in the 2006-2007 periods to a current rate of 30%. Taking the average growth rate for the entire period gives a rate of 62.5%. The capital values of 2-bedroom and 3-bedroom flats were also determined through the survey of estate agents. The compilation of the capital values (in average terms) and their percentage growth rate for the study period is presented in Table 4.4. The values presented are that of a block of 4 no. 2 and 3-bedroom flats.

Table 4.4: Capital value analysis of 2-bedroom & 3-bedroom flats

From the table, it can be seen that the capital values of 2-bedroom flats rose from 12 million for the years 2005 and 2006 to 14 million in the year 2007, a growth rate of 16.7% from the previous year. Then the capital value rose again to 16 million in the 2009, indicating a slight fall in the growth rate to an estimate of 14.3%. the capital value of 3-bedroom flats remained stable through the years 2005-2007 at 15 million and rose to 18 million in 2008 ( a growth rate of 20%) and a further increase in 2009 to settle at 20 million indicating a growth rate of 11.1% from 2008.

Rental yield analyses

To get a better overview of the rental performance of tenement buildings and flats an analysis of the rental performance in relation to that of capital values is required. With this in mind, the rental yields of the accommodation types under study were calculated using equation 1 below:

Rental Yield =    Net income

                                                                  x 100%              Equation 1.

                             Capital value                                

The results of these estimates are presented in Table 4.5 below.

Table 4.5: Rental yields on tenement buildings and flats

Source: Field survey, 2009

As can be seen from Table 4.5 rental yields of tenements and flats have remained relatively stable during the study period (2005-2009). Rental yields of tenement buildings ranged from 6.0% in 2005 to a low of 4.6% in 2009. Those of 2-bedroom flats were the highest with yields of about 8.3% in 2005, 8.8% in 2009 and a high of 9.0% in 2006. Rental yields of 3-bedroom flats ranged from 5.3% in 2005 to 7.7% in 2009. The average rental yields for the study period were 5.8%, 8.5% and 6.0% for tenement buildings, 2-bedroom, and 3-bedroom flats respectively.

Analysis of data according to research hypothesis

The Student t-test was used to test the research hypothesis – the hypothesis is stated below:

• H₀: Rental yields from tenement properties do not vary significantly from rental yields of
• H₁: Rental yields from tenement properties vary significantly from rental yields of flats

The t-test assesses whether the means of two groups are statistically different from each other. This analysis is appropriate whenever one wants to compare the means of two groups. The equation for the Student’s t-test is:

                           X₁ – X₂

t =                 SE (X₁ – X₂)                         Equation 2.

Where:                                                  S₁    S₂

             SE (X₁ – X₂) =            +        n1     n2  ,                                            X₁ – X₂       = difference between group means;

SE (X₁ – X₂) = standard error of the difference;

S² = sample variance; and

n_i = sample size.

Table 4.6:

Computation of the sample variance of yields from tenement buildings

Source: Field survey, 2009

S² =                   (X – X)            

                                 n

=              0.632

                   5

=           0.1264

The above calculation estimates the mean rental yield from tenement buildings during the study period to be 8.54, and from this the sample variance (0.1264) was determined to help in the computation of the Student’s t- test. Table 4.7 below shows the computation of the sample variance of yields from 2-bedroom flats.

Table 4.7: Computation of the sample variance of yields from 2-bedroom flats

Source: Field survey, 2009

S²    =            (X – X)  

                           n 

       =          2.1914

                         5                    = 0.43828

A mean yield of 5.84 the estimated sample variance for 2-bedroom flats is 0.4383. Substituting 0.1264 for S₁, 0.4383 for S₂, 5 for n₁ and n₂, 8.54 for X₁, and 5.84 for X₂ into Equation 2 gives a t-value of 8.0343.

In order to test the degree of variation in the calculated mean rental yields a reminder of the research hypothesis is needed:

• H₀: Rental yields from tenement properties do not vary significantly from rental yields of
• H₁: Rental yields from tenement properties vary significantly from rental yields of

Therefore, t = 8.0343 and using a critical table for n=5 and n=0.05, critical table value of t = 1.860.

Decision

Since calculated value, t = 8.0343 is greater than critical value of t = 1.860 at 0.05 level of significance and 8 degrees of freedom we reject H₀ and accept the alternate hypothesis (H₁); that is rental yields from tenement properties vary significantly from rental yields of flats. Further comparison was done using the coefficient of variation as basis. The rental yields from tenement buildings had a coefficient of 0.11 (11%) while that of 2- bedroom flats had 0.04 (4%) indicating that yields from 2-bedroom flats have lower risks attached to them.

SUMMARY, CONCLUSION AND RECOMMENDATIONS

Summary of findings

The major findings of this study are as follows:

• Rental values of tenement buildings and blocks of flats grew during the study period, although the growth rate tended to fluctuate regularly with an average growth rate of 25.0% for tenement buildings and 2-bedroom flats, and 40.0% for 3-bedroom flats for the entire
• Capital values of tenement buildings and blocks of flats also grew during the study period with minor fluctuations in the growth
• The rental yields analyses from tenement buildings and flats showed that blocks of 2-bedroom flats offered the highest yields with an average yield of 8.53% followed by 3-bedroom flats with an average yield of 6.02% for the study Average yield from tenement buildings stood at 5.84%.
• Further testing of the research hypothesis indicates that yields form tenement buildings vary significantly from those of blocks of flats and thus, may not be favoured as investment options for those who seek maximisation of
• The literature review indicates that majority of the tenement buildings are in deplorable states and are likely to continue to deteriorate in quality as Lagos urban population continues to
• The review of relevant literature further revealed that tenement buildings are no longer being built due mainly to their low yield and poor image as being fit only for the urban poor.

Conclusion

This study has revealed that yields from tenement buildings vary significantly from those of that making investment in them relatively unattractive to investors seeking optimum returns on investments. The rental yields from 2-bedroom flats have been found to be more attractive than that of 3-bedroom flats. Hence, investors with the required capital could invest in the development of blocks of 2-bedroom flats and possibly 3- bedroom flats in the Mushin, Oshodi, Isolo, and Shomolu areas of Lagos state.

Recommendations

Based on this study, and with investors in blocks of flats in mind, it is recommended that prospective investors develop more of 2-bedroom flats in the study areas as these attract the most yields among the options of flats. Furthermore, with the continued increase in the urban population, there is need to create innovative layouts andhouse types that combine the advantages of tenement buildings, such as low cost, and quality of services present in other forms of houses. There is also a need for a housing policy and regulatory instrument that would facilitate the development of housing types to accommodate the majority of the urban population, especially in the suburbs.

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