An Examination of the Effect of Location on Rental Values of Residential Properties
Objectives of Study
The objectives of this study are:
- To determine various location factors affecting residential properties in the study area.
- Examine rental values determinants of residential properties in the study area.
- Examine relationship between location and residential property values in the study area.
- Suggest how the real estate investors and policy makers can reap optimally from locational advantages.
REVIEW OF RELATED AND RELEVANT LITERATURE
Housing is a multidimensional good differentiated into a bundle of attributes that vary in both quantity and quality (Ajilowo & Olujimy, 2010). It is the largest single assets of most households and links the value to represent the wealth. The behaviour of house prices, therefore, influences not only business cycle dynamics, but also the performance of the financial system (Haibin, & Tsatsaronis, K. (2004). Similar definition is given by Oram (1979) cited by Sarathchandra (2008) where it stated that housing encompasses all the auxiliary services and community facilities, that necessary for the wellbeing of humanity. As per Oram (1979) cited in Sarathchandra (2008), housing should meet four main requirements of who occupy it;
- It should provide adequate protection from intruders
- It should be secured from the dangers of fire and structural collapse
- It should be provided under conditions which promote good health including clean and adequate water supplies and the removal of various kinds of waste (sanitation).
- It should ensure that residence enjoy adequate space and privacy According to the above descriptions it is obviously stated that house is the fundamental need of a human and housing is the major setting for family life. It should basically provide adequate space for eating, meeting, sleeping and individual activities. Better housing means not only the provision of a physical unit with floor, walls, and roof: housing fulfills one of the most fundamental human needs of shelter.
The term “rent” has several meanings. According to Chris and Somefun (2007) rent is regarded as the monthly payment that is made to a landlord, and it is also construed to be a payment to the use of the building. But to the economist point of view rent is the return to the land. Most of the landlords turning to renting out properties as an investment, therefore letting market have been seen as an attractive alternative investment for these looking for a less volatile income source. Reed and Greenhalgh (2002) discussed the reasons for increasing the rental dwellings opposed to owner occupancy. A number of changes appear to have adversely affected the Rent vs. Buy decision, such as renting as a cheaper alternative, increasing exposure to other forms of non-housing debt, changing attitude to investment, increased family breakdown, increase a single person household, lower fertility rate, etc
Factors Affecting for Determination of Rental Value of Residential Properties
Without standardization, each property is considered to be unique and thus is priced differently (Ruvio,2010). Because each piece of property is unique, it is often difficult to identify the appropriate variables that will explain the rental prices. According to Kim and Nelson (1996), assessing the rental value of residential properties is a complex and challenging process to both practitioners and academicians because it involves analyzing the rental property, neighborhood characteristics and market conditions. McKenzie and Betts (2006) explained these attributes include physical features such as space, age, condition and apartments. Some features can be measured by objective scale or techniques. Other amenities however are not so objective.
Further, Odame (2010) clearly mentioned the a real estate asset consists of a bundle of attributes including, but not limited to location, but number of bedrooms, gross and lettable floor areas, number of storey’s, type of tenure or ownership rights, plot size, quality of aesthetics and accessibility, all of which may affect its rent and price. However, Zainudeen, Senarathne, Jayasena, & Rameezdeen (2006) see the location as a key factor from customers point of view. Chris and Somefun (2007) and Nakamura and Crone (2004) explained the attributes includes bedroom, toilet, bathroom, kitchen, open space, drainage, water supply, refuse disposal, good road network, recreational parks, hospital and many more. Raymond (2000) further discussed that a residential property is a multidimensional commodity, characterized by durability, structural inflexibility as well as spatial fixity. Based on the above justifications on rental values recent empirical work has investigated substantial lists of factors that have been employed to explain market rents for residential income property. These factors range from physical attributes to property management quality characteristics. In addition, the literature shows that market rent is affected by deviations of observed vacancy rates from natural vacancy rates and by such factors as rental concessions and length of residency discounts. Kim and Nelson (1995) also build a model that can provide an accurate way of assessing the rental value of residential rental property and analyzing the factors that determine market rents by using an Artificial Intelligence Technique. The model constructs Kim and Nelson (1995) in their research incorporates all variables and these independent variables are organized into four categories as follows; RENT = f (BC, LC, TC, NC) Where, BC = Building Characteristics, LC = Landlord Characteristics, TC = Tenant Characteristics, NC = Neighborhood Characteristics Building Characteristics are subdivided into building type, size of unit, amenities, and maintenance. Building type includes the number of units in the structure and age of the building. Size of rental unit includes number of rooms, number of baths and number of bed rooms. Size is the total square footage of the building. Sirmans and Benjamin (1991); Redman and Gullet (1998) all found building size to be a significant factor affecting property values. Landlord characteristics include the investor’s age, years of experience and number of properties owned. Tenant characteristics include the head of household age, race and education level.
The researcher used descriptive research survey design in building up this project work the choice of this research design was considered appropriate because of its advantages of identifying attributes of a large population from a group of individuals. The design was suitable for the study as the study sought to examine the effect of location on rental values of residential properties.
Sources of Data Collection
Data were collected from two main sources namely:
- Primary source and
- Secondary source
These are materials of statistical investigation which were collected by the research for a particular purpose. They can be obtained through a survey, observation questionnaire or as experiment; the researcher has adopted the questionnaire method for this study.
These are data from textbook Journal handset etc. they arise as byproducts of the same other purposes. Example administration, various other unpublished works and write ups were also used.
Population of the Study
Population of a study is a group of persons or aggregate items, things the researcher is interested in getting information for the study. 200 respondents were selected randomly by the researcher as the population of the study.
PRESENTATION ANALYSIS INTERPRETATION OF DATA
Efforts will be made at this stage to present, analyze and interpret the data collected during the field survey. This presentation will be based on the responses from the completed questionnaires. The result of this exercise will be summarized in tabular forms for easy references and analysis. It will also show answers to questions relating to the research questions for this research study. The researcher employed simple percentage in the analysis.
SUMMARY, CONCLUSION AND RECOMMENDATION
It is important to reiterate that the objective of this study was to assess the effects of environmental pollution on real estate development.
In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in supporting the view that pollution has affected the development of real estate in Warri.
The study opened with a background on the effect of location on rental values of presidential properties. A literature review was undertaken in the second chapter where the effects of location on residential properties were examined. The study methodology was described in the third chapter where the method for data collection were discussed. The fourth chapter analyzed the responses from the sampled respondents and the findings of the study were discussed.
Conclusion and Recommendation
The study has evaluated the residential housing rental values and the provision of infrastructure development in the study area. The study among other things revealed that, properties with better conditions in terms of infrastructures and physical soundness command higher rental values, that investment in residential property development will in the next few years continue to enjoy and maintain an upward growth rate. Again that reasonable number of the tenants was not satisfied with the location and services of the banks in the zones, thus there is need for the ministry in charge of land allocation for infrastructural development and plan approval to revisit the situation on ground. This recommends the need for the provision of essential basic infrastructure by government and its agencies and schedule sustainable maintenance programmes for the infrastructure facilities provided. The study therefore concludes that developers should ensures that all basic infrastructural facilities that will attract higher values to their property be provided, government should make implementable policies and established housing quality standard and supervisory agency that will be responsible for monitoring of housing standards.
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