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… OPS, property developers insists govt ‘insensitive’
… state says law will correct imbalance in tax payment
CHUKA UROKO & JOSHUA BASSEY
he new Lagos Land Use Charge is seen raising tenement rents in the commercial city by up to 50 percent, as landlords are gearing up to pass the huge cost to tenants.
Already, some landlords have instructed their property managers, including lawyers and agents to notify tenants of their intent to increase rents based on the new land use charge law.
A tenant in the Lawanson, suburbof Lagos, said on Friday that he has received a notification from his landlord through a lawyer, to increase his rent from N600, 000 to N800, 000 for a three-bedroom apartment. The tenant who gave his name as John, said he was considering relocating to his uncompleted property in Egbe area of the state, to escape the rent increase.
The new Land Use Charge Law, 2018 (LUCL) which repealed the Land Use Charge Law 2001, is a consolidation of all property and land based rates and charges in Lagos State. Accordingly, the tenement rates law, the land rates law, the neighbourhood improvement charge and all other similar property rates or charges, other laws or amendments to any such property laws, cease to apply to any property in Lagos State as from 2018.
The new charges which will be based on the current maket value of eligible property, is as follows: Owner-occupied residential property, 0.076 per- cent per annum of the assessed property value; Industrial premises of manufacturing concerns, 0.256 percent per annum of the assessed property value; Owner-occupied pensioner’s property–exempted and commercial properties 0.76 percent.
The assessed value of each property is now required to be reviewed by the Lagos State commissioner for finance, at least once every five years, based on the information provided by professional property valuers to be engaged by the government.
The Organised Private Sector (OPS) is insisting on the state reversing itself on what it termed “insensitivity” to the feeling of the residents and the effect of the law of on the economy particular the “distressed” building sec- tor. The OPS is also arguing that basing the land use charge on the assessed value of a property is ‘callous’ because a property owner does not receive the full value of his/her property on an annual basis.
Larry Ettah, president of the Nigeria Employers’ Consultative Association (NECA) addressing journalists in Lagos, said: “Basing the annual land use charge rate on the market value of a property is an inequitable form of taxation astheowneroftheproperty isnot as a matter of fact, receiving the market value of the property on an annual basis.
“Using the market value of a property to assess its LUC on an annual basis is also deemed to amount toasubtle form of double taxation as Capital Gains tax is paid every time the property is sold or bought.
“The OPS finds this law intolerable and brutish. It will do everything legal and legitimate including social resistance to challenge this unfair and unjustifiable law. We put the governor on notice that this law in its current form is not acceptable and the OPS will fight this law by social resistance and any other legitimate means at its disposal to get the government to ameliorate the harsh impact of the abhorrent law on residents.
We believe in the context of a democracy that it is important that truth be spoken to power. We hope the government will not be obdurate and see reason as to why this law is unfair as it is insufferable.”
Governor Akinwunmi Ambode signed the law into effect on February 7, 2018, aimed basically to rake in revenue to meet increasing demand for infrastructure and other social services for an estimated 21 mil- lion population.
Akinyemi Ashade, Lagos State commissioner for finance, said the law is to correct what he termed ‘imbalance in tax collection.’ According to Ashade, the decision to base the annual land use charge on the market value of a property is to standardise the tax system.
Ashade said there was inbuilt in the new law, automatic 40 per- cent relief for any property valued, in addition to several other reliefs based on age of the building (25 years and above) promptness of payment, age of the owner (70 years and above) etc. He said taking into consideration all the reliefs provided for in the law, a property owner may have up to 60 or 80 percent taken off his/ her charges or even 100 percent. But real estate professionals and stakeholders have raised concerns, describing the law as an overkill, coming at a time when the sector is struggling to find its feet after a 13-month economic recession.
According to them, while it is the civil responsibility of everybody to pay tax, the ability to do that may be further impaired by laws such as this because, in their thinking, this is a very difficult and wrong time in terms of the current economic realities, to enact this kind of law.
“The real estate sector has been in negative growth for at least, eight quarters; what it needs now are incentives for growth. This new law is punitive in nature and will only serve to put more pressure on the residential market, especially on those who have been paying the tax over the years”, said Erejuwa Gbadebo, CEO ,International Real Estate Partners, in response to emailed questions.
Of all the downsides of the law, the impact on rents (commercial and residential) is most significant, especially in a state where a recent report by the Pison Housing Company on the ‘State of the Lagos Housing Market’ estimates that 65 percent of its 18 million population lives in rented accommodation, spending over 50 percent of their monthly income on rent.
“Definitely, it will affect rents because landlords will aim to transfer part of the liabilities to the tenants, ”affirmed Femi Akintunde, GMD, Alpha Mead Group. He added that the law would put further pressure on the ability of both the landlord and the tenants to be able to meet their service charge obligations, leading to further de- terioration in property condition.
A Broll Nigeria’s 4th quarter 2017 report on the real estate market puts vacancy rate in the retail market at 42 percent and 39 percent in the commercial office market. The situation is worse in the residential segment of the market where the vacancy rate is over 50 percent, especially in the highbrow locations.
Chudi Ubosi, an estate surveyor and valuer, who described the law as insensitive, confirmed that renters would be squeezed. “Rents will go up and those who will find it difficult to pay will move, creating greater vacancy in properties,” he said, explaining,” landlords will find a way to bypass the charge and that will come from the tenants who may decide to move.”
Greater concerns about the law are that it could discourage investment in real estate and for a state
with dire housing problems, that would be damaging.
Gbolahan Lawal, Lagos commissioner for housing, revealed recently that the state has an estimated three million housing deficit that requires 175,000 to 200,000 housing units annually for the next five years to bridge.
Akintunde of Alpha Mead Group, faulted the promulgation of the law which, in his opinion, is flawed in both intent and enforceability, saying that the unintended consequences of the enforcement would be higher rate of default and reduced government income.
“The penalties are too stiff: where is it done that somebody is charged a 25 percent penalty for just defaulting by 45 days ; 50 percent for 75-105 days and you have to be prepared to pay double by defaulting for 105-135 days? Even banks do not charge such a high penalty,” he noted.
