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TRANSCRIPT
CHAPTER ONE
1.0 INTRODUCTION
1.1 BACKGROUND OF THE STUDY
The increase in urban population in Nigeria has brought about increase in the
demand for urban services (improved road network, more schools, places of
relaxation, electricity, water supply, amongst others) and put local councils under
increasing financial pressures.
The three tiers of Government (Federal, State, and Local Governments) are usually
responsible for putting these services in place. It is for this reason that Federal and
State Governments are expected to make allocations to Local Government
authorities to meet their capital and recurrent expenditures to improve the quality
of life of their people. However, as Ekpo and Ndebbio (1998) pointed out, the
allocations from grants made by Federal and State Governments alone cannot
finance all the expenditures of the Local Government as local authorities still find
it difficult to meet both capital and recurrent commitments. The failure of statutory
allocations to meet the needs of municipal councils has refocused attention on
Local Government to fashion out other sources of revenue for the development of
their areas (Kuye, 2002). The most prominent of these sources is tenement or
property rating. Property rating refers to a form of property tax levied at the local
level, for raising the required revenue to carry out specific projects such as the
provision of roads, electricity, health facilities, amongst others. It impinges on the
income accruing from property (real estate) annually.
Property rating is statutorily defined and its origin can be traced back to the Poor
Relief Act or the Statute of Elizabeth of 1601 in the United Kingdom (Oyegbile,
1996). Apart from this legislation, other laws had come out to give effect to and
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regulate the standard of property rating in that part of the world. In Nigeria,
property rating came into force with the enactment of the Assessment Ordinance of
May, 1915, he further stressed. Following these promulgations, several States in
Nigeria, have come up with edicts and legislations to guide property rating
administration within their territories. The legislation for Niger State, where the
Study area is situated, is the Tenement Rating Edict No. 3 of 1995.
These laws provide for the procedures and techniques (method) for the assessment,
collection, and appeal so that the practice of property rating should not be
misguided. However, some procedures have also been implied over the years by
Local Authorities levying the rates. From a general perspective, valuation
inaccuracies occur as a result of insufficient manpower in rating valuation units
within local governments and the award of rating assessment to persons who may
not possess the required skill in valuing properties. Consequently, resulting in a
situation where ratepayers evade or avoid rate payment as a result of overbilling or
in the case where hereditaments are undervalued resulting in reduced revenues for
the Local Government Authority. According to Oguefi (2004), this is as a result of
the lack of manpower that is professionally trained to execute rating administration
as he complained that very few local governments have qualified Estate Surveyors
and Valuers within their employ or lack them is most instances.
Thus, the research work seeks to evaluate the appropriateness of the techniques
used in the rating valuation of commercial properties in Minna and environs.
1.2 STATEMENT OF THE PROBLEM
Generally, property rating is a veritable source of revenue by which local
government authorities meet her recurrent and capital expenditures. At present,
however, yields of urban property taxes in developing countries are extremely low
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(Tomori, 2007). Particularly in the Northern part of Nigeria, property rating have
not been harnessed to its full potential as a good source of revenue by which Local
Government Authorities meets its capital and recurrent expenditure. However,
major problems are usually emphasized concerning property tax in developing
countries. These emerged in the Nigerian study as well as in other studies and
writings on the subject. These three problems are—valuation, assessment and
collection (Gboyega, 1990). This had been creating unrealistic revenue potential
from the tax. These problems stem from the personnel involved, his skill and the
techniques employed. There has been no research regarding this problem hence,
this study wants to investigate the mode of assessment or valuation employed by
Local Government between 2000 and 2009 to ascertain to what extent this has
affected the general success of the property rating exercise in Minna.
1.3 AIM AND OBJECTIVES
The intent of this study is to ascertain the appropriateness of the techniques used in
the rating valuation of commercial properties between (2000 – 2009) within Minna
and its environs.
To achieve this aim, the following objectives would be adopted:
1. To identify the personnel involved in property rating assessment.
2. To identify the techniques adopted in the rating valuation of commercial
properties within the study area.
3. To ascertain the appropriateness of the techniques used in the rating
valuation of commercial properties in relation to the techniques that have
been prescribed for such properties.
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1.4 NEED FOR THE STUDY
The need for property rates arises in order to supplement the Local Government
finance in the provision and maintenance of basic services and amenities.
However, this revenue have not been optimized in recent times to achieving these
needs as a result inadequate funds realized due to under valuation or
misappropriation of collected funds. It is against this backdrop that this research
study seeks to study the appropriateness of the techniques adopted in the rating
valuation of commercial properties in Chanchaga and Bosso Local Government
Areas, located in Minna and its environs. The knowledge of the accuracy of the
techniques for the assessment of commercial properties will aid stakeholders in
property rating administration in significant implementation measures and
strategizing as well as understanding the best approach to adopt in the rating
assessment.
1.5 RESEARCH QUESTIONS
The circumstances of this study within the case study areas naturally brought the
following questions:
1. Who are the stakeholders involved in property rating assessment within the
study area?
2. What are the techniques used in property rating valuation of commercial
properties within the area?
3. What are the reasons for adopting these techniques?
4. Are these assessment techniques appropriate?
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1.6 SIGNIFICANCE OF THE STUDY
This study seeks to evaluate the accuracy of the techniques used in the rating
valuation of commercial properties in Chanchaga and Bosso Local Government
Areas of Minna and its environs. Its importance cannot be overemphasized as it
will address the correctness of skills, procedures and method used in the rating
valuation of commercial properties within the study area as this is a major
contributor to the problems of property rating administration, if not correct. Also,
this study would make effective again the estimated revenue from property rating
which had been hindered and mitigated as a result of the lack of correctness of the
techniques adopted in rating valuation of commercial properties. Furthermore, this
study would proffer the most appropriate techniques for rating valuation of
commercial properties, having exposed the appropriateness of techniques adopted
presently.
1.7 ASSUMPTIONS AND LIMITATIONS
1.7.1 Assumptions
This research study is based on the following assumptions:
1. That the research will be carried out without undue bias.
2. Those respondents who will fill questionnaires and responded to interviews
are knowledgeable about the property rating exercise and their environment.
3. That data obtained from textbooks, journals, internet, etc. are also assumed
to be correct and any gap in knowledge would be identified.
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1.7.2 Limitations of the Study
Certainly, academic research of this nature cannot be without several shortcomings
Bureaucratic nature of government establishments in Nigeria evident in both Local
Governments visited lengthened the duration of this study and most data required
for the proper evaluation of this study were not accessible and made available on
the grounds that they are confidential data. Particularly the information on the
assessed value from 2000 to 2008 was not available which if made available would
have been evaluated against the open market rental values of the properties over
the years. Also, some of the stakeholders in past valuation exercises could not be
reached for information regarding the technique adopted, and some individuals
were unwilling to give out information on their profits and books of account.
However, these limitations, this study was still carried out and recommendations
made.
1.8 SCOPE OF THE STUDY
This study bothers on Minna and its environs, and covers Chanchaga Local
Government Area, of Bosso Local Government Area. The techniques considered
are the methods adopted for the rating assessment/valuation of commercial
properties within Chanchaga Local Government Area and Bosso Local
Government Area of Minna Urban. Commercial properties focused on include;
eateries/restaurants, private schools, private hospitals, filling stations, warehouses
and distribution outlets, offices (banks), and shops. Also the personnel responsible
for rating valuation and administration such as the local government staffs, Estate
Surveyors and Valuers as well as any other firms involved in property rating
assessment would be considered in this study.
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1.9 DEFINITION OF TERMS
For the purpose of this research and a better understanding of the terms adopted in
the research study, the following terms would be defined, including:
1.9.1 Rate Nairage
This is the rate in force in the rating area where the hereditament is located. It is
fixed periodically after considering the financial needs of the rating authority (i.e.
the local government authority responsible for assessment and collection of the
rate). The rate nairage is arrived at after careful analysis of all sources of income
available to the rating authority and the total value of all rateable hereditaments in
the rating area.
1.9.2 Capital Value
The capital value of a tenement or hereditament is referred to as the depreciated
capital value, and a rate upon such tenement shall be amount represented by 5% of
the value multiplied by the uniform rate per naira (Kuye, 2002). That is, the
depreciated capital value shall be the amount at which the tenement is assessed,
giving the replacement cost of the tenement at the present ruling prices at the time
of assessment depreciated according to the age, obsolescence and structural
condition of the buildings upon the tenement at the same time.
1.9.3 Net Annual Value
This is defined as the rent at which the hereditament might reasonably be expected
to let from year to year if the tenant undertook to pay all usual tenants’ rates and
taxes and to bear the cost of the repairs and insurance, as well as other expenses, if
any, necessary to maintain the hereditament in a state in order to command the
rent.
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1.9.4 Gross Annual Value
This is defined as the rent which the hereditament might reasonably be expected to
let from year to year if the tenant undertook to pay all usual tenants’ rates and taxes
and the landlord undertook to bear the cost of the repairs and insurance, as well as
other expenses, if any, necessary to maintain the hereditament in a state in order to
command the rent. In order to arrive at the annual or assessed value, statutory
deductions would be made from Gross Value. The Statutory deduction is to cover
cost of repairs, insurance and other outgoings necessary to maintain the
hereditament in a state to command the rent.
1.9.5 Hereditaments
This is any land, tenement, property that is or may become liable to any rate or in
respect of which the valuation list has been made conclusive. It can also be termed
as any “any such property, which is or may become liable to a rate, being a unit of
such property which is, or would fail to be shown as a separate item in the
valuation list. Before any listing is made, the hereditaments have to be identified.
Thus, in this research study, the terms hereditament, tenement and property would
be used interchangeably.
1.9.6 Tenement/ Property Rates
The term tenement has been defined as lands with buildings, factories, workshops,
storage tanks, petroleum oil and gas pipes, wharfs or piers but does not include
vacant land (Local Government Law, 1980 of Bendel State). In the same vein,
Section 117 (1) of the Rivers State Local Government Edict defines “Tenement” as
“land with buildings which are occupied as a distinct or separate holding or
tenancy of any wharf but is not explicit about bare land not being rateable and
rightly so (Osunwoke, 1990). The two words property and tenement would be used
interchangeably in this book.
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1.10 STUDY AREA
1.10.1 Historical Background
Minna is the capital city of Niger State located in North-Western Nigeria (See
Maps at Appendix C to F). Prior to its present status as the state capital, it was a
small railway town inhabited mainly by Gwari natives, rail workers and civil
servants of the old Niger province. Before it became the state capital, its
indigenous population engaged themselves mainly in farming activities. Later, it
became a civil service town based on the movement of the country’s capital to
Abuja in 1991. Today, few industries have started to emerge, quite a number of
banks have equally spread their tentacles to Minna recently. Minna accommodates
about 65% commercial activities in the state. There are good network of roads,
which include two dual carriage roads that cut across at two ends of the towns, a
tarred road links all areas. There are also a good network of drainages, regular
electricity but not constant and water supply from the public main. Facilities such
as airport, railway lines, hydro-electric power stations, stadium, four and five star
hotels, trade fair complex, telecommunication networks, institutions of higher
learning, making thus Niger-state an emerging commercial centre in Northern
Nigeria.
1.10.2 Population and People
Minna has an estimated population of 304,113 as at 2006 population census with
an annual growth rate of between 6.9% and 8% per annum.
The major ethnic groups in Minna and its environs include Nupe, Gwari and Hausa
being their common language. Tribes from other states like the Igbo’s, Yoruba’s
and numerous others have also settled in Minna. The inhabitants are mainly
Christians and Muslims with few traditionalists.
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1.10.3Geographical Location
The city lies on latitude of 9036’50” North and on longitude of 6033’25” East with
a land area of 6,784sqKm. It is the headquarters of Chanchaga Local Government
Ares. Minna is bounded to the North by Shiroro L.G.A, to the West by Wushishi,
to the South by Bida, and to the East by Suleja, Lapai and Agaie.
The city of Minna is connected to neighbouring cities by road and Abuja the
capital of Nigeria is only 150km away. It is also connected by railroad to both
Kano in the North, and Ibadan and Lagos in the South. The city also has an airport
that connects it to the world.
1.10.4Climate, Weather, and Vegetation
Minna has distinct wet and dry seasons with a mean annual rainfall of 133mm, and
September recording the highest rainfall of 300mm (1,107 inches). The rainy
season lasts between 190-200 days. The mean monthly temperature is highest in
March at 30.50 c (87 0f) and lowest in August at about 25.10c (720f).
The city of Minna experiences three weather conditions annually. This includes a
warm, humid, rainy season and blistering dry season which is equivalent of winter
in the temperate region and summer in the temperature climate. In between the two
seasons, there is a brief interlude of harmattan occasioned by the north east trade
wind with the main features of dust haze intensified coldness and dryness.
In terms of vegetation, Minna falls within the savanna zone vegetation of the West
Africa sub-region. The dominant vegetation of the city is however classified into
three (3) savanna types which are; the park or grassy savannah, the savannah
woodland, and the shrub savannah.
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1.10.5 Chanchaga
Chanchaga is a Local Government Area in Niger State, Nigeria. Its headquarters
are in the State capital, Minna which occupies much of the Chanchaga Local
Government Area. Chanchaga lies on a latitude of 9036’50” North and on longitude
of 6033’25” East. It has an area of 72sqkm and a population of 201,429 (Census
figure, 2006).
1.10.6 Bosso
Bosso is a Local Government Area in Niger State, Nigeria. Its headquarters are in
the town of Maikunkele. Bosso Local Government Area has an area of 1,592sqkm
and a population of 147,359 (Census figure, 2006).
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CHAPTER TWO
2.0 LITERATURE REVIEW
2.1 CONCEPT OF PROPERTY RATING
Property rating is conceptually a form of property tax or levy imposed on occupier
of land with its administrative districts by a local authority (Local Government). It
is also referred to as tenement rating which is the imposition of tenement/ property
rates. This view is exclusive as various authors have presented their views on this
subject. Barlowe (1978) defined property taxes as annual charges on the asset
values of all the non-exempted properties located in taxing district. The assertion is
that these taxes applied to all classes of properties except properties that are
exempted such as the church, public schools charitable organization etc.
Property rating have been defined as a process of scientifically assessing the
rateable value of hereditament using the appropriate basis of rating and applying a
stipulated percentage of rateable value for determining the appropriate rate for the
hereditament (Adi, 1991). This he stated is a local tax imposed on owners and
occupiers of landed properties in respect of rateable properties owned or occupied
by them. However, Olayonwa (1996) was of the view that property rating is an
annual charge against the assessed annual value of all non – exempted properties
within any rating authority or district. The amount of revenue required by the
rating authority in each year is first established and then total liability is distributed
among rate payers according to some definite standard. It is also conceived that
property rating is a form of tax levied on real property and it is normally charged at
local level for raising the required revenue to carry out specific developmental
projects (Oyegbile, 1996 and Kuye, 2002). This tax they stated is aimed at
promoting the total well being of inhabitants of the local community. For example
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in Nigeria, the third tier of government, the local government is rating unit within
which property rates can be assessed, levied and collected. Kuye (ibid) stressed
that the levy is on property (i.e. real rather than personal property) according to its
values. He opined that it is a tax on the occupation of property; hence, it aims at
raising revenue for the rating authority. Jones (2004) sees real property taxes as
levied annually and is based on the market value of the property as determined by
the local government.
Considering the forgoing, it is clear that property rating is a compulsory levy by
the Local Government in charge of governance at the local level for raising
revenue to meet both capital and recurrent expenditures. This rate impinges on real
property and is usually a percentage of the annual return from the property being
the liability of the owner known as the rate payer except in cases where
exemptions are granted.
2.2 HISTORY OF PROPERTY RATING
The first rating law which is known as the Poor Relief Act or The Statute of
Elizabeth was enacted in 1601. The Act provided for the levying of taxes on every
occupiers of land, houses etc towards the relief of the poor. Occupiers of
hereditaments are to contribute, under the statute, to the poor in their area
according to the need. In 1836, the annual value became a basis of assessment of
contribution. This means that each hereditament would be assessed and its annual
worth is taxed. The Annual value as a basis of assessment became recognised in
the periodical assessment act of 1836. There was no basis or definite system of
referring to rating valuations until 1963. However, the common assessment act of
1963 brought an improvement.
Apart from the 1601 act in United Kingdom, other laws came out to give effect to
and regulate standards for property rating in the United Kingdom. The 1925 act
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defines and makes a clear distinction between the gross annual value and the net
annual value. This Local Government Act of 1948 highlighted the procedures for
making and amending the valuation lists. A new basis of assessment for dwelling
house and rate contribution in respect of electricity and certain transport
undertakings was introduced. It was responsible for transferring the duty and
responsibility of making and defending the rating assessment valuation of
properties from local authorities to the Inland Revenue commissioner.
Changes were brought about to the laws in property rating in the United Kingdom
by the valuation and rating act of 1953, rating and valuation (Miscellaneous
provision) Act of 1953, 1951, 1959, 1961 and 1964 and the General Rate Act of
1967. All issues affecting rating authorities, basis of assessment, valuation list,
exemption and relief procedures, and period of assessment and toning of lists were
harmonized and made less of a subject of contention and disagreements.
2.3 PROPERTY RATING IN VARIOUS COUNTRIES
In most other countries of the world the perception of property rating and property
taxation in general may vary slightly but a few of these concepts are considered
below:
Table 2.1: Property rating in various Countries
S/N
Country Basis for property
Time sequence
Rate Mode of assessment
Remarks
1. Australia Land value Quarterly $100 to 1,000 per quarter depending on the location and value of land
Flat fee charge alone or a combination of both
Here what is common is the quarterly payments, but frequencies varies by locality
2. Canada Current use and land value
Annually Municipal tax rate x phased-in assessment for
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the particular taxation year = municipal portion of tax county/regional tax rate x phased-in assessment for the particular taxation year = county/regional portion of tax education tax rate x phased-in assessment for the particular taxation year = education portion of tax municipal portion of tax + county/regional portion of tax + education portion of tax = Total Property Tax
3. Chile Land and building value
Annually 1 to 2% of fiscal value
-
4. Hong kong Annual income
Annually Fixed standard taxation rate usually 80% of annual income
Net assessable value = 80% of Assessable value.HK property tax payable = Net assessment value X Property tax standard rateAssessable value = Rental income + Premium + (Rental bad debt recovered — Irrecoverable rent) – Rates paid by owner.
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5. Jamaica 2/3 of property value
Annually - - -
6. India Building and land value
Annually Flat rate structure on rural properties
- The tax is underutilized in the municipalities and not effectively used in panchayats mainly due to tax payer resistance
7. Netherlands Annual income
Annually - - Here the tax liability is shared between the owner and occupier of the house
8. United Kingdom
Annual gross income
Annually The rate is fixed across the countries
Floated as according to the budget decided on by councilors
9. United States
Improvement or building value
Not fixed 0.2 to 4% of build value
-
10. Nigeria Annual gross income
Annually Rate between 0.03 to 15% across varying states
Multiplication of annual income of property – outgoings= rate payable
The tax liability varies across the states and Lagos State has shifted to Land Use Charge
SOURCE: Authors research, 2010
2.4 COMPARISM OF THE PROPERTY RATING IN NIGERIA AND
OTHER ADVANCES COUNTRIES
In Nigeria rates payable are determined by the application of a rate nairage to the
annual rental value of hereditaments. However, in countries such as Australia, the
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assessed value of the land determines the total charges of rates. Rates can range
from $100 per quarter to $1,000 per quarter depending on the location and value of
the land. The United States of America, rates vary across the states, between about
0.2% and 4% of the home value comprising of the value of the improvements and
the land value. This however has not been established in Nigeria where though
variation exists across States, the extent of range of rate variation has not been
fully established. Nigeria and the United Kingdom practice similar property rating
systems attributed to the fact that most laws in Nigeria are fashioned out of the
British law because they colonized the country. However in Britain and the United
Kingdom, rates are still as at 2010 levied on business property, though some
classes of business are exempt. In Chile, Jamaica, India, Netherlands, and most
other developing countries, the approach to tenement rating and the basis for the
tax, assessment and administration takes a different connotation.
2.5 RATING ASSESSMENT/ VALUATION
Valuation has been defined as the determination of the monetary worth or value, at
a specific date and for a specific purpose, the property rights encompassed in an
ownership (Udechukwu, 2006). Simply he further considered valuation as the art
and science of determining for a specific purpose at some specific date, the
monetary worth of property interest or right encompassed in an ownership and by
one authorized to do so. While, rating on the other hand is process of assessing and
fixing a rate. Thus, rating valuation is the art and science of determining the
monetary worth or value for rating purposes at some specific date, and by one
authorized to do so (i.e. a valuer or rating officer). Assessment is an act of
determining the exact amount subject to taxation under a given status Ifediora
(1998). Assessment involves the processes of land procedure for determining the
taxable value of property on which the tax burden is calculated in accordance with
the enabling law. As have been posited by (Kuye, 2002), rating valuation involves
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the analysis of field data, comparison with appropriate rents and land values from
elsewhere in the local property market in accordance with the guidelines provided
for the exercise, to determine the gross and net rateable values of the respective
hereditaments.
Most landed properties are rateable and the often advises ratepayers on their
assessment for rating, and if necessary, negotiates with the Valuation officer, who
is himself a valuer. They also conduct appeals on behalf of rate payers in the local
courts. In order to ascertain the rate liability of a particular occupied building, two
things ought to be known:
a) The rating assessment of the occupied property expressed in terms of
rateable value and,
b) The amount of the rate in the Naira in force where the property is located.
2.5.1 Basis for Property Rating Valuation
In valuing most premises for rating purposes, the object of the valuation is to find
the Gross Annual Value which is the basis for the valuation (Section 16 (1) of
Tenement Rating Edict No. 3 of 1995). This is the rent at which the property may
be expected to let in the open market assuming the owner does the repairs and the
tenant pays the market rent.
The valuation may be based on the following:
(a)The rent at which the premises are let: The rent actually paid in a
particular case is not necessarily indicative of the gross annual vale, as it
may be subject to special factors, for instance, the rent may be low because
the landlord and the tenant are relatives or the low rent passing on the
premises is in consideration of the lessee paying a premium on entry or
surrendering an unexpired term of the existing lease or undertaking an
improvement or alteration to the premises on behalf of the landlord.
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Therefore, with the above circumstances, the rent paid would not represent
the gross rental value of the premises.
(b)Rent at which similar properties are let: The rent at which similar
premises are let is the basis, which is usually adopted, and the other method
should be employed only when this basis namely, equality as between
various properties. When employing this method, the valuer collects all the
relevant information he can as regards the rent paid in the neighbourhood for
various types of properties. The rents are then reduced to a common standard
by adjusting them so as to make it (rent) conform to the definition of Gross
Annual Value (GAV).
(c) The profit of the business carried-on the premises: A prospective tenant
of a commercial property will calculate his likely turnover, costs, and
allowance for interest on capital employed in the business, salary and rates.
The balance will represent the Net profit. He will then determine the
proportion of this net profit to be allocated to rent. Hence, prospective
tenants will differ in the way they calculate the rent that they are prepared to
pay, with resultant variations in the figure obtained.
However in summary, the bases of assessment known to have been adopted in one
form or another in different parts of the world (McCluskey et al, 2002) include:
a. Capital Value of the whole hereditament that is land and building taken
together.
b. Capital Value with land derated i.e. only the improvement thereon (building
tax).
c. Capital Value with improvement derated i.e. only land usually referred to as
unimproved value or site value.
d. Annual rental value to a hypothetical tenant.
e. Actual annual rent payable.
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f. Profit method used in the absence of rental evidence and where there is a
sufficient element of legal or factual monopoly.
g. Unit charge in various forms.
2.5.2 Elements of Property Rating Valuation
It is a general rule in rating valuation that apart from properties that may be
exempted or granted relief, it is not all other hereditaments that are liable to pay
property rates. Rates are payable primarily not by the owner, but by the person
who is in rateable occupation. From the four tenets of rateability, it is possible to
determine who is or not in rateable occupation. These elements are:
(a) Actual occupation or possession:
There must be actual occupation, that is, there must be some degree of users no
matter how slight. Where premises are not used, the right to use them is not
sufficient to amount to actual occupation. An intention to us the premises in the
future does amount to occupation. However, the test of actual occupation takes into
account the types of hereditament. If the use is seasonal, rateable occupation may
continue throughout the year, even though the property is in fact empty for part of
it. It is not necessary that the occupier should have title to land. This implies that a
trespasser may be in rateable occupation.
(b) Exclusive occupation:
i. General: The second element of rateable occupation is that the occupier
must be able to prevent others from using it in the same way as himself. But
the existence of simultaneous but different rights is consistent with rateable
occupation. Although, primarily, the legal entitlement to possession raises a
presumption of rateable occupation, this presumption will be rebutted where
the person entitled to possession can show that he is unable to take
possession.
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ii. Occupation by Several Persons: Two or more persons may be in joint
occupation and if this is so they are each liable for rates on the whole
property. An example of this is where land is occupied by partners, but it is
not so where spouses occupy. In this case if he is under a duty to maintain,
he will be the sole rateable occupier.
iii. Paramount and subordinate occupation: In certain circumstances
different persons with separate interests in the property, might each appear
to be in rateable occupation. In these circumstances, the rateable occupier is
the person with the paramount occupation.
iv. Occupation by another: Where an employee occupies premises, he will
often occupy as a representative of the employer. This will be so where the
employee is obliged to be on the premises and his employer is assisted by
his being so. Where, however, the occupation is for the purpose of the
employee, although he occupies by virtue of this employment, he, and not
his employer, is the rateable occupier.
(c) Beneficial occupation:
Occupation must be beneficial if it is to be rateable and in many cases, this benefit
may be in the form of pecuniary benefit. Also, occupation which shows no
immediate profit, but is potentially beneficial will be sufficient. In addition, the
occupation is beneficial if it enables the occupier to discharge a duty. For example,
a local authority in charge of sewage disposal is in rateable occupation of sewage
disposal works.
(d) Permanent occupation:
For an occupation to be rateable it must have in it an element of permanency. The
test of permanency is related to the use of hereditament, and does not depend on
the term for which it is held. A weekly tenant and licensee can be in rateable
occupation and so can trespasser, as was shown earlier.
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2.5.3 Exemption and Relief from Property Rating Valuation
1. Exemption
Exemption occurs when freedom from liability to pay the rate is granted. It is the
freedom from an obligation to a pay a tax. In this research study it would be
referred to as the freedom or the permission granted to an individual not to pay the
property or tenement rate. The Tenement Rate Edict provides that the following
tenements be exempted from assessment and rating:
a. All lands and buildings appropriated exclusively for the purpose of public
worship e.g. churches, mosques and shrines.
b. Cemeteries and burial grounds.
c. Charitable institutions similar institutions certified by the Commissioner
for Finance and Economic Planning and Commissioner for Information,
Sports, Youths and Social Welfare to be non – profit making and
educational institutions certified by the Commissioner for Education to be
non – profit making.
d. Educational properties.
e. Agricultural land and buildings.
f. Government properties.
g. Pipelines.
h. Plant and Machinery.
2. Relief
Relief in property rating valuation is different from exemption though in some
cases similar. It is a condition of abating partially the liability or burden to of rates.
Person(s) granted relief are people who are normally due to pay rates but for
certain reasons are being considered for either a total or partial abatement. Relief is
the case where the right to pay rate is established but remission granted because of
the peculiar condition of the rate payer. It differs from exemption in that it
22
recognises the right to pay but abates it. While relief acts on the person, exemption
is on the occupation. That is, the use or purpose for which particular hereditament
is being committed to.
2.5.4 Principles of Property Rating Valuation
There are five general principles to be considered in preparing valuations for rating
purposes. According to Johnson, Davies, and Shapiro (2005) the principles to be
adhered to in the valuation for rating purposes include:
a) The hereditament being valued must be assumed to be vacant and to let.
The statutory definitions assume a tenancy and it is, therefore, necessary
to assume that the hereditament is available so that the bid of the
hypothetical tenant on the statutory terms can be ascertained.
b) The hereditaments must be valued “rebus sic stantibus” which means in
its actual existing physical state. This rule does not, however, prevent the
assumption of minor changes of non – structural nature. Furthermore, the
mode of occupation by the hypothetical tenant must be conceived as the
same mode as that of the actual occupier. Thus, possible changes for use
may be largely irrelevant.
c) If a property must let at a rack rent, then that was the only permissible
evidence. However, other evidence may be examined, and this includes
rent passing on comparable properties.
d) Assessment on comparable properties may be considered in the absence of
better evidence.
e) The rateable unit will normally be taken as the whole of the land and
buildings in the occupation of an occupier within a single cartilage.
It is not necessary for parts to be structurally severed to be capable of separate
assessment if the parts are physically capable of separate occupation. If parts are
23
separately assessed and one part ceases to be in rateable occupation then there
would normally be no liability for rates on that part.
2.5.5 Procedures for Property Rating Exercises
There are a number of very important things to be done for a successful property
rating exercise and a good rating valuation. According to Onyekwuena (2001) as
cited by (Kuye, 2002), the process of rating involves all the stages required to meet
the goals and objectives of a rating exercise to be achieved. The most important
steps in the process include the:
1. Recruitment of Staff: The first step in any rating exercise is the
appointment of staff which would be responsible for the appraisal or
assessment of the rate to be paid. Usually, external or private Estate
Surveying and Valuation practitioners or firms, due to shortage of the
requisite manpower resources in the various rating valuation offices and the
limited time-period within which the exercise is expected to be completed.
2. Preparation of working sheet: In efforts to speed up the process of data
collection and data analysis both on the field and in the office, some working
sheets have to be prepared. These working sheets are prepared sheets of
paper, which make for easy entering and extraction of useful information
about the individual rateable hereditaments. Some of these working sheets to
be prepared are:
i. Field inspection sheet
ii. Rating valuation data sheet
iii. Valuation list sheets
iv. Demand Notice forms
3. Public enlightenment: This is extremely important as people are at the
centre of any rating exercise. Therefore it is the duty of the appraisers to
24
carry out an extensive awareness campaign to make the public aware about
the exercise, its benefits to them, and the reason for carrying it out.
4. Reconnaissance survey: The rating assessment to be carried out is expected
to involve the entire hereditaments in the local government area which is the
rating area. Therefore it becomes an exercise in the right direction to first
take a trip around the whole rating area. The objective or reason for this
reconnaissance survey is to reveal the extent of the area of operation and the
likely difficulty to be encountered in carrying out the exercise.
5. Area zoning: The rating area should be zoned into working areas. This is
easy after a good reconnaissance survey had been previously carried out. As
the appraisers or valuation officers go round the rating area he/she will be
able discover the coverage of the area and precisely delineate the area. For
example; zone A, zone B, zone C, etc.
6. Market survey: This exercise normally involves consulting with the
practicing Estate Surveyors and Valuers, Quantity Surveyors, and other
participants in the property market. It is an investigation to determine the
annual rent passing, cost of construction, and the market indices, which will
in the determination of the rates be adopted in carrying out the rating
assessment or valuation.
7. Field inspection and physical measurement: The above discussed stages
are the bedrock on which the field inspection and physical measurement lie.
Failure to carry field inspection and measurement will render the rating
exercise a nullity. Hence, every hereditament to be assessed should be
physically visited and inspected which automatically lead to the physical
measurement of the property. It must be noted that Valuation officers should
not be tempted to accept building plans from the owners or occupiers.
25
8. Property survey: This goes hand in hand with the physical inspection and
measurement of the properties. The field inspection sheet is the material
normally used to simplify this seemingly difficult work. This job can be
made easy depending on the training, experience and knowledge of the
leader of the team members.
9. Office computation and entries: The expertise of the valuers becomes very
useful at this stage where the information already collected by the use of
working sheets are taken onto the office to arrive at the final figures used for
the computation of the assessed value and consequently the rate payable
which would be the liability of owners to pay. The data could be analyzed by
the use of computer since the world is now in a computer age.
10.Compilation and of valuation list: During this stage all entries are entered
and organized serially taking into consideration the location, address, rating
area/zone and the type of property. This stage brings about the production of
the valuation report as would be presented to the rating authority and
displayed to the public.
11.Display of the Valuation list: Before the valuation list can be adopted, it is
mandatory for the interim list of all proposed rateable properties to be
displayed in an open place for a period of about 30 days. This is done to
allow for complains from the ratepayers to the rating officers. The rating
officers are expected on their part to look into every objection and inform
the complainants the outcome of their objections. Once these corrections
have been made, if any, the valuation list is closed signed by the appraisers
and adopted as the prevailing or the current valuation list.
26
2.6 Overview of the Techniques, or Methods of Property Rating Valuation
The actual rating valuation/assessment is very crucial to the success of any
property rating exercise. It usually a fundamental task carried out by the rating
valuer in a process leading to the preparation of the valuation list. The object of
this exercise is to determine the current annual rental value of the property. This
annual value is referred in rating terminology as the Assessed or Rateable Value of
the property. There are several methods of valuation in use for property rating
valuation. However, as opined by Olatunji (2008) with exceptions in cases where a
statutory formula is prescribed for valuing a given property, the valuation produced
by all methods of valuation is admissible as evidence. He was of the opinion that
nature and circumstances surrounding a property being assessed that will dictate
the method of valuation to be adopted. Supported by the International Valuation
Standards Committee (IVSC), the Royal institute of Chartered Surveyors (RICS),
several different international and national approaches for the valuation of property
and real estate were presented according to Sven et al (2009) and Ogbuefi (2004)
as with other prominent authors, the following methods are advanced for rating
assessment and valuation.
1. Rental evidence method or income approach:
This is so far the most common method and undoubtedly the best method in that it
is based on hard evidence of what is actually paid in the market and the “real
worth”. As opined by Johnson, Davies, and Shapiro (2005) called this approach the
valuation with reference to rents paid. In its simplest form, this means that if the
hereditament is let at a date which approximates to the valuation date and
demonstrably following an arm’s length negotiation, then it is to be expected that
the rent so determined and being paid will be the value for rating purposes but such
rent must conform to the annual value. Having thus valued a hereditament, similar
27
hereditaments could be valued on comparable basis. It is important to mention that
where property has to be valued to gross value, the rents used for the purpose of
comparison will be adjusted approximately to bring them to accord with rent in
terms of gross value, especially where properties are let on full repairing and
insuring term. The common practise in this case is to add certain percentages to the
rent paid representing outgoings to obtain the gross value. This is necessary where
the tenant is responsible for internal repairs and/or for internal and external repairs.
The gross value obtained is usually called the assessed value to which the rate
nairage is applied to obtain the tenement/property rate payable.
According the Oyegbile (1996), the adoption of this method seems very easy.
However, care must be taken to ensure that the true annual rental value of the
property being used as evidence in obtained. All factors that are likely to affect the
rent so as not to give the true rent are to be noted and considered. The true rent of
the property, which the rating valuer is interested in is the “open market value” of
the subject property. Open market value is the price, which an interest in property
might reasonably be expected to realise in a sale by private treaty, based on the
following assumptions:
(a) A willing buyer.
(b) A reasonable period within which to negotiate the sale, taking into
account the nature of the property and the state of the market.
(c) Values will remain static throughout the period.
(d) The property will be freely exposed to the market.
(e) No account is to be taken of an additional bill be a special purchaser.
(f) No account is to be taken of expenses of realisation which may arise in the
event of a disposal
This method is most applicable in the rating valuation of residential, commercial,
and other classes of properties especially where there are comparable properties
28
with evidence of rental or capital values accruing from such properties which
would be adopted as the basis for the subject. Ogbuefi (2004) was of the view that
this method can be applied to commercial properties (such as shops and offices)
and other properties that can be let. He commented that in practice the use of this
method have not been properly articulated owing to the use of unqualified or
inexperienced rating valuers.
2. Profit Method:
This method is sometimes referred to as the Account Method. It is used where
rental value is absent or inconclusive. The reason is that it is based on the extensive
usage of the books of account of the business being carried out within the property
being assessed. It is used in rating assessment when the rental evidence approach
cannot be employed due to lack of evidence of rent passing. The theory behind the
use of this method is that the hypothetical tenant is likely to relate his rental bid to
the profit he would likely make from the business being carried out in the property
(Kuye, 2002 and Oguefi, 2004). No investor will like to operate at a loss.
Therefore none would like to pay a rent that is more than the profit made on his
business. Indeed, the margin of profit is likely to help determine the amount of rent
he is willing to pay. Again, it is most common to employ the method in cases
under which some elements of monopoly are enjoyed in the business being carried
out. In such cases the rental value is adjudged to be dependent on the profit earning
capacity of the tenement. Such examples include hotels and guest houses, race –
courses, cinema halls, petrol filling stations, caravans, public utility corporations
and other licence premises that enjoy some degree of monopoly. The basic concept
and procedure to be adopted in using this method are as follows:
Gross Income .........................
Less Working Expenses .........................
29
Divisible Balance _____________
Less Tenant’s Share .........................
Rent and Rates _____________
Less Rates .........................
Rent _____________
Apply the Rate Nairage .........................
Rate Payable _____________
Variant of the Profit Method:
A Variant of the profit method is the Through-put analysis. This approach is the
simplified version of the profit method and normally adopted for the valuation of
garages and petrol or gas stations. It is referred to as through – put because it is
based on potential annual profit on sales of gas put through the containers. In
arriving at the annual value using this method, the values attributed to other
properties and services that go along with the filling station must be considered
(i.e. the annual value of the supermarket/ minimart, the value of the garage/ service
workshop, the generator house, etc.). The combined annual gross value should be
obtained before arriving at the overall rateable value of the property. The actual
annual rental of this adjoining supermarkets/ minimarts can easily be obtained
from the analysis of rent within the neighbourhood. And the garage/ service
workshop can be obtained adopting the contractor’s test.
3. Contractor’s test/ Cost Approach:
It is not always that rental evidence is available to the rating valuer. Indeed, there
are arrays of properties that are not rented out or are not easily lettable. Such
properties include grain silos, fire stations, shops and commercial complexes,
schools and colleges, cinemas and theatres, hotels and guest houses, sewage works
and petrol filling stations as well as other public utility services. The rent passing
30
cannot be determined either directly or indirectly, yet the valuer is called upon to
assess such properties. The solution is to use the “contractor’s method”.
This method is also referred to as the Depreciated Replacement Value method or
the Cost of Replacement Method. The principle underlying this method is that the
hypothetical tenant would relate the amount being offered as rent to the annual cost
of purchasing the hereditament. As such, whatever is paid annually is seen as a
percentage of the overall cost. When computed over the life span of the interest in
the property, it would be equal to the overall cost of the property. Therefore, a
percentage of the capital value of the property is taken to represent the annual
rental value of the property.
The steps adopted in this approach are as follows:
(i) Determine the cost equivalent similar new building/property. This cost is
the current Replacement cost of the property as at the date of valuation.
(ii) Depreciate the cost in (i) to reflect the present state of the property. The
figure here will then be that of equivalent reinstatement cost of the
property rebus sic stantibus.
(iii) Add the cost of the bare site. Care should be taken not to add all this cost
to (i) above before depreciating. The reason is that the land is not likely
to depreciate except if evidence is obtained to that effect.
(iv) Then, take a percentage of cost (iii) as the Annual value or assessed value
of the property. The percentage to be adopted if not stated in the law on
the rating assessment should be determined based on field experience. It
is however customary to adopt between 5% - 8%.
(v) Apply the Rate Nairage to the assessed value or annual value to arrive at
the rate payable.
The procedure of arriving at the above is straight forward but caution must be
taken to ensure that all the steps above are systematically followed. The concept
31
adopted above as can be seen is based on the cost whereas normal valuation is
based on value. However, lacking evidence of value, cost could serve as a guide. It
must be mentioned that care must be taken in the use of this method for rating
assessment because so many subjective judgements are built into its use. The
principal usefulness appears to rest on the doctrine that the cost of replacement
represents a ceiling value. This doctrine according to Ifediora (1993) is valid only
under perfect market conditions because, as has been well established in economic
theories, cost can be well above value under conditions of imperfect competition.
4. The Income Capitalisation (Investment) Method:
This is based on the principle that annual values and capital values are related to
each other and that, given the income a property produces or its annual value, the
capital value can be found. The method is widely used by valuers when properties
which produce an income flow are sold to purchasers who are buying them for
investment. That is, the property is purchased primarily for its income bearing
capacity. The method involves the determination of net rental income multiplied
by a years purchase factor at the appropriate rate of interest over the time period
concerned. This time period should normally be equal to the life of the investment
and the method is similar to that employed by the equities market where valuations
of stocks are undertaken with reference to their price to earnings ratio (p/e).
Rental income can be actual or notional. Actual rental income exists when the
property is let on lease and the tenant pays a rent for use and occupation. Notional
rental income occurs when the property is owner-occupied – the notional rent
being the rental that would otherwise be paid for the use and occupation of a
similar property.
Many types of property are let (rented) on terms, which require the landlord to bear
the cost of certain outgoings, that is expenses related to the property, that are
32
essential to the property maintaining its full value. To arrive at the net income in
such cases, outgoings must be deducted from the rent paid. Landlord’s outgoings
are usually classified as: Repairs, Insurance, Management, and Rates and Taxes
e.g. ground rent charges and other forms of taxes.
Note that service charges are not part of landlord’s outgoings.
The Years Purchase (Capitalisation Rate) or multiplier is derived from the rate of
yield (rate of return) that an investor decides he will require from a property. This
yield reflects the quality of the investment in comparison with other property
investments and other investments generally. Consideration has been given to
factors, which influence the investor in his choice of yield and the valuer will
obviously need to be conversant with these when using the investment method. It
should be noted that as with most investments the yield reflects the attendant risk
attached to the investment and in the case of property would be representative of
the attractiveness of the investment to the purchaser in the market in general, with
specific regard to:
a) Capital security (in real terms);
b) Income security;
c) Income growth;
d) Ease of sale and management;
e) Return on other investments.
It will be noticed that an analysis of previous transactions is a pre-requisite of the
investment method and the comparative principles are at the heart of this process.
Hence, this method involves estimating future income flows and converting this
income flow to capital values.
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5. Other Approaches or Analyses
The above three methods stand out as the commonest methods normally used in
property rating assessment. But like the variant of the of the profit which is the
through-put analysis, other analysis exist as variant approach to the rental
evidences or income approach and the cost approach as given thus:
a) Output Method
In the assessment of mines for the production of different kinds of minerals or of
mineral producing hereditaments the output method is adopted. These mines could
b engaged in the production of burnt clay bricks, coal, tin, iron, gypsum, and any
other mineral and the determination of the amount to be paid is normally based on
the total output of the minerals concerned. Here, a rate in x kobo/ton is fixed which
is applied to the total level of production to obtain the rate payable. The total
quality of production for the rating year arrived at is multiplied by the
predetermined rate fixed per unit of production. This unit of production can be
expressed in volume, weight, or quality depending on the nature of the mineral
extracted. And the rate to be adopted for a particular year will depend on the
quality of the minerals, location of the minerals with respect to the market place of
consumption and efforts put in place before the minerals are extracted.
b) Average Analysis
This method is also known as the Cumulo approach. It has been used in Britain for
assessing water undertakings like canals and other forms of transportation. Details
are however not explored in this research study.
c) Zoning Analysis
The zoning analysis is generally used in the valuation and assessment of shops and
departmental stores. It is basically the application and analysis of the rental
34
evidence available to the valuer/ rating officer. The principle underlying this
method is based on the observation of large shops of different values.
2.7 RATING VALUATION AND EMERGING TECHNIQUES
Recent development particularly in developed countries among experts in the field
calls for more use of Discounted Cash Flow (DCF) Methodologies Mallison
Report (RICS, 1994). The DCF Method is not expected to replace the traditional
methods but can and should be used whenever the purpose calls for worth
calculation. French (1996) emphasized that DCF is not solution to all valuation
problems but instead should be used alongside the principal methods of valuation.
Other methods in use include the Computer Aided Mass Appraisal (CAMA) which
can be made by use of Hedonic or multiple regression models which can be used to
handle data for varying hereditaments.
2.8 COMMERCIAL PROPERTY
Commercial properties can be said to be buildings for profit making business. It
comprises mainly of shops, show rooms, and offices as well as those that offer
retail and wholesale services used for investment purposes. According to Olu
(2007), commercial properties are those properties developed solely as investment
for or payable for the use of the property or the realization of profits from sale of
such property after having completed the development. He further stressed that
these properties render retail and wholesale services, provide banking or other
financial services or they handle other similar functions.
Developments of a commercial nature comprise of different building
components/services with each of these services providing a different utility to the
occupier(s), (including visitors and customers of the business venture). It is often
impossible to have unlimited resources (due to budget constraints) to provide for
these services /components and this creates the need to prioritize them. Thus,
35
emphasis will be on those items on the peak of the value hierarchy scale of these
services/components as derived from market research.
The best of investments are those located in the central position where the value
most often lies in the site rather than the buildings. That is higher values or rents
are enjoyed in better locations than others. Investments located in specified
locations can be assessed or evaluated based on the return on the property or rental
income. In the view of Harvey (1999), rent is determined by accessibility to the
user of a property, while the higher the rent in question, is practically a function of
its advantage in terms of accessibility (commercial location), convenience and
amenity.
2.8.1 Types of Commercial Property
Commercial property types vary and according (Udechukwu, 2006) to include
shops (lock up shops, chain shops, mobile shops, supermarkets, etc.) and office
premises. However, it extends to include all such properties use for trading and
commercial purposes such as office building, industrial building, medical centres,
warehouses, hotels, shops, garages, factories, schools and all forms of income
yielding ventures. In developed countries, rented residential apartments are
considered commercial properties.
2.9 PROBLEMS OF DATA COLLECTION IN TENEMENT RATING
EXERCICES
The use of the most appropriate technique regarding rating valuation would be
achieved if the data is readily available. However as been pointed out by Kuye
(2002), several problems that hinder the success of the data collected include:
(1)Difficulties of gaining access to the various tenements to be assessed.
36
(2)The problem of taking internal measurement of the tenement and sketching
of properties.
(3)The problem of interpretation and application of exemption clauses.
(4)The uncooperative attitude of owners/occupiers in giving useful information
and allowing easy access to tenement.
(5)Poor public enlightenment by the government on the relevance of the
exercise.
2.10 ANALYSIS OF NIGER STATE RATING EDICT NO. 3 OF 1995
REGARDING RATING VALUATION AND ISSUES RAISED
The Tenement Rating Edict would be analyzed under the following Headings:
Appointment of Valuers
Duration of Assessment
Basis of Valuation
Method of Valuation
(a) Appointment of Valuers:- As provided in Section 7 (1) of the Edict, the
Director-General may appoint for any rating area, any suitable person or
firm to act as Valuation Officer. The Edict however, did not specify clearly
the qualification of the suitable person to carry out rating valuation of
commercial properties within her territory make it very open to any
individual whether qualified or unqualified to carry out rating assessment/
valuation to be involved in it.
(b) Duration of Assessment:- the Edict in Section 9 (2) specifies valuations to
be carried out every five years following a general assessment. However, a
toning or updating of the list is recommended every year to take cognisance
of newly developed properties or liable hereditaments that omitted during
the general assessment.
37
(c) Basis of Valuation:- Section 16 (1) provides that all tenements shall be
value with reference to the Gross Value and Section 16 (2) the rate payable
would arrived at by deducting an amount from the Gross Value that shall
reflect the outgoings that will be incurred to earn the Gross Value.
(d) Method of Assessment:- The Edict provides in Section 17 (1) for the use of
the comparative/ rental evidence method where there are comparables
within the vicinity of the tenement being valued. Section 17 (2) provides for
the use of the Depreciated replacement cost method where it is apparent to
the Valuation Officer that tenement cannot be valued with reference to the
direct rent by the reason of the special nature of the tenement. And
alternatively, in Section 19 the Edict specifies the use of the profit method
with respect to properties that are not let.
2.11 A REVIEW OF RELEVANT LITERATURE
Several problems have been raised over time as being the cause for the failure to
recoup the much anticipated revenue from property rating exercises. Amongst this
problems include the issue of the method of valuation used. According to Shittu
(2002), in an unpublished study titled “Issues of Property Rating and Taxation in
Nigeria: A Case Study of Kaduna State”, pointed out that the use of the
contractor’s or the depreciated replacement cost method in the valuation of all the
hereditaments within the local government had a lot of controversies because the
method was not suitable for some property types within the area. Her main point
was that the use of cost method for the valuation of commercial properties always
leads to under valuation in some neighbourhood and overvaluation in other
neighbourhoods. Other issues were the low quality or the lack of skill and
manpower necessary for the exercise of rating valuation and the entire property
rating administration exercise.
38
However, as had been opined by Kelly and Musunu (2000) in Tanzania to date,
due to the perceived lack of market information, all valuation for rating is being
done on a cost replacement approach. The law there provides for a maximum
allowable depreciation rate of 25 percent and the property tax roll to be valued
every five years or for such longer period as the responsible Minister may approve.
It was pointed out by them an important component of a valuation-based property
tax system is the need for a simple but effective system of appeals. Sections 33-42
of the Urban Authorities (Rating) Act (UARA) provide for appeals Tribunal which
is centralized and which can only be appointed by the Minister responsible for
local authorities. It is reported that the high level of this Tribunal has often caused
considerable delay in the hearing of appeal cases and therefore postponing the use
of the valuation rolls for taxation (UNCHS, 1998). Property valuations until
recently in Tanzania were conducted on a sporadic basis funded by the central
government—usually without proper maps and without a systematic property ID
system. These valuations were largely carried out by the Ardhi Institute on behalf
of the local authorities due to the lack of in-house valuation expertise. To date, no
empirical studies have been undertaken to estimate the level or the accuracy of the
property valuations in Tanzania. However, based on international experience in
other similar countries, it can be assumed that the average valuation ratio may be in
the order of 30-50% of market value, with large variations among properties. This
low valuation ratio would typically be attributed to the valuation standards used,
lags in the valuation roll, and lack of indexation in the unit rates used for the flat
rate system.
In the United Kingdom, the practice is to adopt various methods of valuation for
the valuation of different classes of property. According to French (2002) the
accounts / profit method is used in the valuation of commercial properties in the
United Kingdom which is a reflection of the available information in the market
39
place. He pointed out that the offices, shops, industrial units and warehousing be
valued by either the Investment or Comparative Methods or, in some markets, by
the Replacement Cost Approach particularly where rental evidences are lacking.
He further commented on other commercial properties thus as was supported by
Plimmer (2003), in his study of “An Overview of the Method of Valuation for
Local Property Tax (Rates) in the United Kingdom” valuers are, however, required
to value the actual property (although assumptions may need to be made regarding
its state of repair) within the actual locality and to use actual market evidence in
order to fix a rateable value. Specifically, valuers are required to consider all of the
evidence – all of the factors which affect the rental value (other than those which
rating law specifically excludes) must be taken into account. Valuers according to
him are, however, given no direction as far as method of valuation is concerned
and it is well recognized that all methods of valuation are admissible in court. "The
goodness or badness of them goes to their weight as evidence" (Garton v Hunter
(VO) 1969). Thus, the courts rely more heavily on the outcome of one method
rather than another, depending on the circumstances and it is clear that certain
property types are valued using certain methods rather than others. Thus, shops,
offices and general industrial and warehouse premises are valued using open
market rental evidence; petrol filling stations, cinemas and race courses are
valued using a profits method; and specialist industrial premises, leisure centres,
municipal property and plant and machinery are valued using a contractor’s
method.
In fact, there are only two instances when the law intervenes in the valuation
process:
the rateable values of occupational properties belonging to the so-called
statutory undertakers (providers of such services as water, gas, electricity,
rail) are valued using a statutory formula, which is not a true valuation; and
40
Within the contractor’s method, the law prescribes the percentage to be used
to convert the capital value to a rental value.
One of the important issues of any tax is that people should pay proportionately i.e.
in the case of a property tax, those who occupy more valuable properties should
pay more than those who occupy less valuable properties. Thus, the taxable value
needs to reflect that differential in a way and to a degree which is acceptable to the
taxpayers and the electorate.
For a property-based tax, the open market value of property must be the best
evidence on which to base a tax.
Hence, it is evident that since commercial properties run as business are seen as
income yielding hence they are valued on account or profits method. Example of
such properties include schools, hospitals, supermarkets, etc and others of the like.
Although, where there are rental evidence the practice is to adopt the Rental
evidence or investment valuation approach.
Therefore determining the gap in knowledge according to Olowu (2002), the most
intractable problem confronting this property tax administration has been to find a
suitable and reliable local revenue base. Central government transfers in many
countries have been relied upon to finance local government revitalization. While
this is a welcome development, his paper suggests that there are some dangers as
well. Of the possible forms of local taxes that are possible in many developing
countries as was identified by him, property tax is the most highly recommended.
Other alternatives such as the poll tax in East and West Africa, or Octroi in India
have been abused and are regressive in terms of their impact (see World Bank
1995, Livingstone & Charlton 1998).
On the other hand, three major problems are usually emphasized concerning
property tax in developing countries. These emerged in the Nigerian study as well
41
as in other studies and writings on the subject. These three problems are—
valuation, assessment and collection (see for instance Gboyega 1990). All three
problems are compounded by the fact that land titles and cadastre are poorly
developed in most of these societies. The idea that land is government –or
communally owned have only aggravated the problem.
A crucial element is that of property assessment. On the one hand the preparation
of a proper valuation roll requires accurate data pertaining to rateable property
parcels, but on the other hand, it is all in vain if the tax assessed is not collected.
The municipal valuer, although unwillingly, is a team player. His/her own
performance unfortunately is dependent on how the other players (e.g. those
responsible for accurate property records and those responsible for tax collection
and enforcement) perform. It will take a considerable effort and commitment on
the part of all concerned if the current, rather dismal state of municipal assessment
for rating purposes is to improve significantly.
The Tenement Rating Edict No. 3 of 1995 provides in Section 17 (1) for the use of
the comparative/ rental evidence method where there are comparables within the
vicinity of the tenement being valued. Section 17 (2) provides for the use of the
Depreciated replacement cost method where it is apparent to the Valuation Officer
that tenement cannot be valued with reference to the direct rent by the reason of the
special nature of the tenement. And alternatively, in Section 19 the Edict specifies
the use of the profit method with respect to properties that are not let. (See the
Tenement Rating Edict No. 3 of 1995 at APPENDIX G). Hence, where the
techniques comply with the statute they are considered appropriate.
42
CHAPTER THREE
3.0 RESEARCH METHODOLOGY
INTRODUCTION
This chapter is known as the Research Methodology and is described as the basic
plan that guides the researcher in his data collection and logical research work. It
comes after the review of literature and gives support to the analysis and result of
this work giving a good understanding to readers. This section explains the sources
of data, data handling technique, procedure and instruments of data collection, data
sampling technique amongst others, necessary for the accomplishment of the set
aim and objectives of the research work.
3.1 INSTRUMENTS FOR DATA COLLECTION
Based on the peculiar nature of this research study, the instruments that were
adopted include:
1. Questionnaire:
This represents a set of questions that are posed in order to obtain responses in
relation to the variables available. It is the most widely data collection instrument
and was used extensively for this project research. The questionnaire employed is a
mixed questionnaire comparison open-ended and close-ended questions. See
sample of the questions adopted for Estate Surveyors and Valuers at APPENDIX
B.
2. Personal Interview:
This refers to personal interaction between the researcher and the interviewee to
obtain information necessary for the accomplishment of his goal and the resolution
of his problem. A set of questions were prepared for interview with the local
43
government officials. See sample of the questions adopted for interview at
APPENDIX A.
3. Field Survey:
This is has to do with an interaction, study or observation of the objects being
researched upon. It may include a combination of observation and interview in
some cases. Prior to the commencement of the research work a reconnaissance was
done to be acquainted with the happenings associated with property rating
assessment in the study area.
3.2 PROCEDURE OF DATA COLLECTION
In carrying out this research, Chanchaga and Bosso Local Government Areas were
visited to obtain data on the personnel involved as well as details on collection
efforts from estimates of valuation and approach to tenement rating valuation for a
ten year period between 2000 – 2009 by means of interview with the Principal
Revenue Officers and the Lands Officer at the department of works.
Questionnaires were also adopted to collect data from Estate Surveyors and
Valuers to ascertain their involvement in rating valuation exercises within the
period under study and the techniques they employed by interviewing them and
filling their responses into the questionnaire so that the accurate data would be
retrieved.
3.3 SOURCES OF DATA
Data was sourced from two main sources which are the primary and secondary
sources.
44
3.3.1 Primary Sources of Data:
These represents raw materials needed for processing in order to arrive at findings
relevant to the research problem and were collected directly by the researcher
through questionnaire, personal interview and field survey.
3.3.2 Secondary Sources of Data:
These are materials obtained from past research works that are considered
resourceful and relevant to the study and include seminar papers, internet materials
{Hypertext Markup language (http) and Portable document file (Pdf) documents},
past projects, records from the local government authority, textbooks, and the
Tenement Rating Edict No. 3 of 1995.
3.4 METHODS OF DATA COLLECTION
The following methods were adopted in collecting data relevant to the research
work. Methods of data collection such as interview and questionnaires were
adopted.
3.4.1 Interview
With respect to the research work an interview was done by the researcher during
the course of this research by asking a respondent representing the Local
Government Authority, for a information regarding the persons who have been
involved in the Rating Valuation of commercial properties in Minna from 2000 –
2009 as well as the approach they adopted if it had being able to meet the need of
the Local Government Council. Interview was conducted with the Principal
Revenue Officers of the Local governments to obtain information on the personnel
that have been involved in property rating as well information on the collection
efforts made and the rate nairage to appraise the techniques adopted in property
assessment exercise.
45
Table 3.1: Analysis of staff interviewed in Chanchaga and Bosso Local Government Areas.
S/N. RESPONDENTS DEPARTMENTLOCAL
GOVERNMENT AREA
DURATION IN SERVICES
1.Principal Revenue
OfficerRevenue
Chanchaga 10years & above
2. Deputy lands officer Works (Lands and Estate)Chanchaga
Above 5 years
3.Principal Revenue
OfficerRevenue
Bosso10years & above
SOURCE: Field Survey (2010)
3.4.2 Questionnaire
Questionnaires distributed for this research work are in the form of structured
(close-ended) questions for the purpose of the research work. Questionnaires were
distributed to Estate Surveyors and Valuers who have been involved in the rating
valuation of commercial properties from 2000 – 2009.
Table 3.2: Schedule of questionnaire administered to Estate Surveyors and ValuersS/N
Description No. administered
No. returned
No. not returned or poorly filled
Percentage returned (%)
1 Estate Surveyors and Valuers
32 21 10 65.63
SOURCE: Field Survey (2010)
3.5 SAMPLING AND SAMPLING TECHNIQUES
Sampling is a process by which elements of the target population is selected with a
view of finding out something about them in order to know something about the
whole population. Sampling technique helps in the selection of element in the
population. The method employed varies depending on the nature of the population
and research itself.
46
3.5.1 Population of the Study
The population of the study comprises of all the relevant departments in
Chanchaga and Bosso Local Governments involved in property rating. This
consisted of the Lands office under the works department of both Local
Government Councils. Also the population includes Estate Surveyors and Valuers
in Minna, Niger State.
3.5.2 Sampling Technique
This refers to a process by which elements of a target population is selected with a
view to finding out questions/information about them and thus making a general
conclusion to the whole. Owing to the unusual nature of this research study, the
method/technique of sampling adopted was the purposive sampling technique. It
was adopted for this study due to the fact that the target group is small and the
basis of selection was relating the involvement and participation of Estate
Surveyors and Valuers in past rating valuation exercises within the study area as
there were found appropriate to provide the data requirement for this study.
Purposive sampling technique is a type of non-probabilistic technique which is
based on the selection of sample elements based on the judgment of the researcher
and the nature of the population group. Adopting this technique the researcher
chooses the sample based on who he thinks would be appropriate for the study and
is used when there are a limited number of people that have expertise in the area
being researched. The quota type of purposive sampling precisely was adopted.
3.5.3 Sample Frame
The sample frame adopted for the study comprised two (2) members of staff in the
Lands office of the works departments in Chanchaga Local Government, one (1)
47
Members of staff in Bosso Local Government and thirty-two (32) Estate Surveyors
and Valuers practicing in Minna as was obtained from the Branch Secretary
Nigerian Institution of Estate Surveyors and Valuers (NIESV), Minna, Niger State
(2010).
3.5.4 Sampling Size
Due to the small size of the population and sampling frame for the study, all the
elements in the sample frame were adopted as sample size for the study. This
equaled 35
3.5.5 Sampling Unit
This refers to the geographic or physical unit or area where the targeted population
is located and from which the sampling exercise took place. For the purpose of this
study, Minna Urban has been chosen as the sampling unit. And this unit was
further sub-categorized into Chanchaga and Bosso Local Government Areas
because Property Rating which is the main object of this study is usually carried
out at the Local Government Level.
3.5.6 Sampling Element
These are the individual members of the target population about which information
is required. Here the sample elements were Estate Surveyors and Valuers and staffs
of the Local Government who have been and are involved in Property Rating
exercise within Minna Urban.
48
3.6 Data Handling Technique
Descriptive analysis was adopted to analyze the data collected and presentation
was done in a mode for easy comprehension using tables and likert scale to analyze
data. Also some data which could not be presented in tables were analyzed using
textual analysis.
49
CHAPTER FOUR
4.0 DATA PRESENTATION, ANALYSIS AND INTERPRETATION OF
RESULTS
INTRODUCTION
Data serves as a database for further research and when comprehensively analyzed
provides credibility and validation to the conclusion drawn by the researcher from
the available records. The data obtained from the field would be presented and in
tables and charts and textually analyzed as given thus:
4.1.1 Personnel Involved in Property Rating Valuation Exercise
The participants involved and responsible for the rating valuation exercise within
the study area were identified so that they can be reached for techniques they adopt
in valuing commercial properties for rating purposes.
Table 4.1.1 Personnel involved in Property Rating Valuation from 2000 to 2009 for Chanchaga Local Government Area.
YEAR Personnel Involved2000 Exercise was not conducted2001 Exercise was not conducted2002 Exercise was not conducted2003 - 2006 Local government officials through her treasury
department2007 - 2008 Non-Estate Surveyors and Valuers2009 Estate Surveyors and Valuers
SOURCE: Revenue office Chanchaga L.G.A. (2010).
From Table 4.1.1 above validated by interview with the Principal Rating Officer,
between the year 2000 – 2002 the rating valuation exercise was not conducted
hence there was no information available regarding the personnel involved while
the period of 2003 – 2006 Local government officials through her treasury
department made up of accountants were involved in the Rating Valuation of
50
commercial properties, 2007 – 2008 saw valuation carried out by Non-Estate
Surveyors and Valuers (Canaan Land Consultancy Services), and 2009 a
Professional practicing Estate Firm M. B. Nuhu and Company was involved. The
implication of the table above is that Estate Surveyors and Valuers were not fully
incorporated in property rating assessment but have just been considered in 2009 to
do so.
Table 4.1.2: Personnel involved in Property Rating Valuation from 2000 to 2009 for Bosso Local Government Area.
YEAR Personnel Involved2000-2003 Exercise was not conducted2004 Estate Surveyors and Valuers2005 Based on 2004 valuation2006 Based on 2004 valuation2007 Non-Estate Surveyors and Valuers2008 Non-Estate Surveyors and Valuers2009 Non-Estate Surveyors and Valuers
SOURCE: Revenue office Bosso L.G.A.
The Table 4.1.2, above regarding the personnel involved in property rating
valuation of commercial properties in Bosso government as elicited by interview
with the Principal revenue Officer revealed that from 2000 to 2003 the Exercise
was not carried out, while in 2004 Estate Surveyor and Valuers was contracted,
and in 2007 and 2009 a Non-Estate Surveyors and Valuers whose valuation
estimates are used for rate collection to date was contracted.
Thus, from the foregoing Tables 4.1.1 and 4.1.2, it suggests that Bosso Local
Government Area started much earlier adopting Estate Surveyors and Valuers
before Chanchaga so they would expect to record much success regarding the
approach to tenement rating valuation and although, Estate Surveyors and Valuers
were recently incorporated to Chanchaga, they have been discarded by Bosso
Local Government suggesting that something went wrong.
51
4.1.2 Techniques Employed in the Rating Valuation of Commercial
Properties in Minna
Validated by interview with staffs of both Local Government Areas and Estate
Surveyors and Valuers who have been involved in rating exercise, the following
techniques below were employed:
Table 4.2.1 Techniques adopted for Property Rating Valuation from 2000 to 2009 for Chanchaga Local Government Area.
PERIOD STAKEHOLDERS TECHNIQUE ADOPTED2004 – 2006 Local Government Staffs
through her treasury department
Arbitral fixing of assessed values based on the budget
2007 – 2009 Non-Estate Surveying and Valuer
N/A
2009 to date Estate Surveyors and Valuing firm
*Rental Evidence and Replacement Cost Method
SOURCE: Revenue office Chanchaga L.G.A.* M. B. Nuhu & Co
Table 4.2.2 Techniques adopted for Property Rating Valuation from 2000 to 2009 for Bosso Local Government Area.
PERIOD STAKEHOLDERS TECHNIQUE ADOPTED2004 – 2006 Estate Surveyors and Valuing
firm*Rental Evidence and Replacement Cost Method
2007 – 2009 Non-Estate Surveying and Valuer
N/A
SOURCE: Revenue office Chanchaga L.G.A.* Babatunde & Co.
From Tables 4.2.1. and 4.2.2 it is evident that the techniques adopted by Local
Government Officials was an arbitral fixing of assessed values suggesting that they
did not base the assessment during those years on the Net Rental Value which is
the actual basis for property rating assessment revealing that the practice was
carried out without reference to the Edict and the specifications set out for property
52
rating valuation in the statute; it was also found out that the practice was exercised
by the treasury department made of mostly accountants who are not supposed to
carryout valuation as have been set out in Section 3 of the Regulations for the
practice of Estate Surveying and Valuation, Decree No. 24 of 1975 now CAP III
LFN 1990 which stipulates that no individual except an Estate Surveyor and
Valuer should be involved in valuation for all purposes; while Estate Surveyors
and Valuers adhered to the use of conventional methods as rental evidence and cost
replacement approach; the Non-Estate Surveyors and Valuers (Canaan Land
Consultancy Services) could not be reached on the methods adopted signifying the
firm is no longer in operation and connotes that the firm was set up by individuals
in the authority and closed at after the property rating exercise.
4.2 FACTS FROM ESTATE SURVEYORS AND VALUERS
4.2.1 Response on the Involvement in Property rating Valuation
Estate surveyors and valuers practicing in Minna were sampled to obtain their
responses on the involvement in property rating valuation exercises in the study
area in the last ten years and their responses are summarized in the table below.
Table 4.3 Responses on the Involvement of Estate Surveyors’ and Valuers’ in Property Rating Valuation Exercise in the study area.
Local Government
Area
Response
Chanchaga L.G.A Bosso L.G.ANo of
Respondent% of
RespondentsNo of
Respondent% of
Respondents
Yes 4 19.05 2 9.52No 17 80.95 19 90.48TOTAL 21 100 21 100
SOURCE: Field survey (2010)
53
From the Table 4.3 above, it is evident that 4 respondents, representing 19.05% of
the population, have been involved in property rating valuation for Chanchaga
L.G.A, while 9.52% representing 2 respondents have been involved in property
rating valuation for Bosso L.G.A implying that the spread of professionals in the
practice of rating valuation is quite limited in Minna.
4.2.2 Application of the Niger State Tenement Rating Edict No. 3 of 1995
Table 4.4: Showing the Application of the Niger State Tenement Rating Edict No. 3 of 1995
Local Government
Response
Chanchaga L.G.A Bosso L.G.ANo of
Respondent% of
RespondentsNo of
Respondent% of
Respondents
Yes 4 100 2 100No - - - -TOTAL 4 100 2 100
SOURCE: Field survey (2010)
From the Table 4.4 above, 100% which represents 4 respondents and 2 respondents
involved in the rating valuation of commercial properties responded positively to
the application of the Tenement Rating Edict No. 3 of the1995 in Chanchaga and
Bosso L.G.A areas of Minna suggesting that they follow the provisions set by the
law.
4.2.3 Basis for Tenement Rating Assessment
Table 4.5: Showing Basis for Tenement Rating Assessment
Local Government
Basis of Valuation
Chanchaga L.G.A Bosso L.G.ANo of
Respondent% of
RespondentsNo of
Respondent% of
Respondents
Annual value 4 100 2 100Capital Value - - - -Assumptions - - - -TOTAL 4 100 2 100
54SOURCE: Field survey (2010)
From the Table 4.5 above, 100% which represents 4 respondents and 2 respondents
involved in the rating valuation of commercial properties responded positively to
basis for rating valuation as the annual value in Chanchaga and Bosso L.G.A areas
of Minna suggesting that they comply with the provisions set by the law.
4.2.4 Method Adopted for rating valuation of Commercial properties
The responses of Estate Surveyors and Valuers who have been involved in rating
Valuation of commercial properties in Chanchaga and Bosso Local Government
Area were sampled and their opinions analyzed below:
Table 4.6.1: Method Adopted for rating valuation of Commercial properties in Chanchaga L.G.A
Method adopted
Commercial property types
Rental Evidence
Cost Method
Profit Method
Investment Method
Others
Office and Shops 2(50%) 2(50%) - - -Filling Stations - 4(100%) - - -Schools and Hospitals 2(50%) 2(50%) - - -Factories and Warehouses - 4(100%) - - -Restaurants/ Eateries 1(25%) 2(50%) 1(25%) - -
SOURCE: Field survey (2010)
From Table 4.6.1 above, it is evident that most responses were between rental
evidence and cost method while profit method accounts for only 25% of the
responses suggesting that Estate Surveyors and Valuers in Chanchaga L.G.A
involved in rating valuation adopt the rental evidence and cost method of valuation
implying that most properties assessed within the study area are valued using the
rental evidence and cost methods.
55
Table 4.6.2: Methods Adopted for rating valuation of Commercial property types in Bosso L.G.A
Method adopted
Commercial property types
Rental Evidence
Cost Method
Profit Method
Investment Method
Others
Office and Shops 1(50%) 1(50%) - - -Filling Stations - 2(100%) - - -Schools and Hospitals
2(100%) - - - -
Factories and Warehouses
- 2(100%) - - -
Restaurants/ Eateries 1(50%) 1(50%) - - SOURCE: Field survey (2010)
From Table 4.6.2 above, it is evident that most responses were between rental
evidence and cost method while no response where given regarding other methods
suggesting that Estate Surveyors and Valuers in Bosso L.G.A involved in rating
valuation do not adopt the profit, investment and other methods of valuation for
rating within the area.
56
4.2.5 Reasons for use of the Methods for Rating valuation of Commercial
Properties
From the survey carried out and interview with Estate Surveyors and Valuers, the
reasons advanced for the use of these methods include the following:
Table 4.7 Reasons for use of the Methods for Rating valuation of commercial properties in Chanchaga and Bosso L.G.A. of MinnaSuggested Reasons Strongly
AgreeAgree Undecided Disagree Strongly
DisagreeDifficulties in gaining access to varying tenements to be assessed
- 2 1 3 -
Uncooperative attitude of occupiers in giving useful information regarding profits and rents as well as allowing easy access to tenements
2 3 1 - -
Specified by law - 4 2 - -It is the best method - 1 5 - -The problem of interpretation and application of exemption clauses.
- - 2 4 -
SOURCE: Field Survey (2010)
The attributes in Table 4.7 above are assigned points as given below with strongly
agree assigned the highest
Strongly Agree – 5
Agree – 4
Undecided – 3
Strongly disagree – 2
57
Disagree – 1
Table 4.8: Overall assessment of reasons for use of the Methods for rating valuation of commercial properties in Chanchaga and Bosso L.G.A. of Minna
The columns in Table 4.7 are multiplied by the points assigned to the attributes
above
Suggested Reasons Strongly Agree
(5)
Agree(4)
Undecided(3)
Disagree(2)
Strongly Disagree
(1)
SUM
Difficulties in gaining access to varying tenements to be assessed 0 8 3 6 0 17Uncooperative attitude of occupiers in giving useful information regarding profits and rents as well as allowing easy access to tenements 10 12 3 0 0 25Specified by law 0 16 6 0 0 22It is the best method 0 4 15 0 0 19The problem of interpretation and application of exemption clauses. 0 0 6 8 0 14
SOURCE: Computed from Data in Table 4.7
Composite Index/ mark off point
1.00 – 1.49 Strongly disagree
1.50 – 2.49 Disagree
2.50 – 3.49 Undecided
3.50 – 4.49 Agree
58
4.50 – 5.00 Strongly Agree
Table 4.9: Mean points for overall assessment of reasons for use of the Methods for rating valuation of commercial properties in Chanchaga and Bosso L.G.A. of Minna
Suggested Reasons Total points
Mean
(SUM/6)
Interpretation
Difficulties in gaining access to varying tenements to be assessed
17 2.83 Undecided
Uncooperative attitude of occupiers in giving useful information regarding profits and rents as well as allowing easy access to tenements
25 4.17 Agree
Specified by law 22 3.67 Agree
It is the best method 19 3.17 Undecided
The problem of interpretation and application of exemption clauses.
14 2.33 Disagree
SOURCE: Computed from Data in Table 4.7 and 4.8
From analysis in Table 4.7, 4.8, and 4.9 above, it is evident that the reasons for the
use of the rental evidence and the cost methods for property rating valuation of
commercial properties are as a result of the specification by law and the
Uncooperative attitude of occupiers in giving useful information regarding profits
and rents as well as allowing easy access to tenements this thus suggests that
people are not well enlightened about the benefit, need and importance of paying
tax else they would be more cooperative particularly where they are aware of how
they are been assessed.
59
4.2.6 Source of rate Nairage
Table 4.10: Source of Rate Nairage
Local Government
Response
Chanchaga L.G.A Bosso L.G.ANo.
Respondents% of
ResponseNo.
Respondents
% of Response
Fixed by law 1 25 1 50Determined by budget needs
- - - -
Specified by Local government Council
3 75 1 50
TOTAL 4 100 2 100SOURCE: Field Survey (2010)
From Table 4.10, the responses suggest that the source of the rate nairage applied
to the assessed values to obtain annual values is the mostly specified by the local
government signifying that the local government council specifies the rate.
4.2.7 Involvement in the updating or toning of valuation list
Table 4.11: Involvement in the updating or toning of valuation list
Local Government
Response
Chanchaga L.G.A Bosso L.G.ANo.
Respondents% of Response No.
Respondents% of
Response
Yes - - - -No 4 100 2 100TOTAL 4 100 2 100
SOURCE: Field Survey (2010)
From Table 4.11, responses from Estate Surveyors and Valuers revealed that 100%
claimed that they have not been involved in the updating of valuation list and
response from one of them obtained by interview who has been involved some
60
years ago revealed that updating of valuation list is never done implying that the
list is allowed to be outdated pending a general revaluation exercise.
4.2.8 Coverage of all Commercial hereditaments
Table 4.12: Coverage of all commercial hereditaments
Local Government
Response
Chanchaga L.G.A Bosso L.G.ANo.
Respondents% of Response No.
Respondents% of
Response
Yes - - - -No 4 100 2 100TOTAL 4 100 2 100
SOURCE: Field Survey (2010)
From Table 4.12, it is evident that not all commercial hereditaments are covered in
both study areas, and substantiating this by interview it was argued that not all
hereditaments were captured in Bosso on the grounds that after a feasibility and
viability study was done only a few were viable to be rated and for Chanchaga
bureaucracy and the delay to seek approval from the Ministry of Local
Government and Chieftaincy affairs takes time and as such some commercial
properties were captured and assessed and the process in still ongoing till now as
only the Phase I of the exercise have been completed and there is lack of a base
map of the Study area.
61
4.2.9 Procedures adopted for property rating valuation of commercial
properties in Chanchaga and Bosso Local Government Areas
The procedures adopted by Estate Surveyors and Valuers for property rating
valuations of commercial properties in both local government areas include the
following:
1. Public enlightenment: This is extremely important as people are at the
centre of any rating exercise. Therefore it is the duty of the appraisers to
carry out an extensive awareness campaign to make the public aware about
the exercise, its benefits to them, and the reason for carrying it out.
However, they claimed the local government council was responsible for
carrying out the enlightenment campaign through announcements on
Televisions.
2. Reconnaissance survey: The rating assessment to be carried out is expected
to involve the entire hereditaments in the local government area which is the
rating area. Therefore it becomes an exercise in the right direction to first
take a trip around the whole rating area. The objective or reason for this
reconnaissance survey is to reveal the extent of the area of operation and the
likely difficulty to be encountered in carrying out the exercise. This was
done by Estate Surveyors to ascertain the extent of the boundaries of the
local governments so that disputes are avoided as in the case where the
boundary was not clear and jurisdictional claims are made regarding a
particular hereditament by both local governments.
3. Area zoning: The rating area should be zoned into working areas. This is
easy after a good reconnaissance survey had been previously carried out. As
the appraisers or valuation officers go round the rating area he/she will be
62
able discover the coverage of the area and precisely delineate the area. For
example; zone A, zone B, zone C, etc.
4. Market survey: This exercise normally involves consulting with the
practicing Estate Surveyors and Valuers, Quantity Surveyors, and other
participants in the property market. It is an investigation to determine the
annual rent passing, cost of construction, and the market indices, which will
in the determination of the rates be adopted in carrying out the rating
assessment or valuation.
5. Field inspection and physical measurement: The above discussed stages
are the bedrock on which the field inspection and physical measurement lie.
Failure to carry field inspection and measurement will render the rating
exercise a nullity. Hence, every hereditament to be assessed should be
physically visited and inspected which automatically lead to the physical
measurement of the property. It must be noted that Valuation officers should
not be tempted to accept building plans from the owners or occupiers.
6. Property survey: This goes hand in hand with the physical inspection and
measurement of the properties. The field inspection sheet is the material
normally used to simplify this seemingly difficult work. This job can be
made easy depending on the training, experience and knowledge of the
leader of the team members.
7. Office computation and entries: The expertise of the valuers becomes very
useful at this stage where the information already collected by the use of
working sheets are taken onto the office to arrive at the final figures used for
the computation of the assessed value and consequently the rate payable
which would be the liability of owners to pay. The data could be analyzed by
the use of computer since the world is now in a computer age.
63
8. Compilation and of valuation list: During this stage all entries are entered
and organized serially taking into consideration the location, address, rating
area/zone and the type of property. This stage brings about the production of
the valuation report as would be presented to the rating authority and
displayed to the public.
9. Display of the Valuation list: Before the valuation list can be adopted, it is
mandatory for the interim list of all proposed rateable properties to be
displayed in an open place for a period of about 30 days. This is done to
allow for complains from the ratepayers to the rating officers. The rating
officers are expected on their part to look into every objection and inform
the complainants the outcome of their objections. Once these corrections
have been made, if any, the valuation list is closed signed by the appraisers
and adopted as the prevailing or the current valuation list.
4.3 FACTS FROM LOCAL GOVERNMENT STAFF
4.3.1 Availability of Specified departments for carrying out rating valuation
Table 4.13: Showing the availability Specified department for carrying out rating valuation
Chanchaga L.G.A Bosso L.G.AResponse No. of
Respondents% of
ResponseNo. of
Respondents% of
ResponseYes 1 - - -No 1 50 1 100TOTAL 2 100 1 100
SOURCE: Field survey (2010)
From Table 4.13 above, it is clear that there not constituted department for rating
valuation although, one respondent from Chanchaga Local government council
claimed there is.
64
4.3.2 Performance of Public enlightenment campaigns
Table 4.14: Performance of Public enlightenment campaigns
Chanchaga L.G.A Bosso L.G.AResponse No. of
Respondents% of
ResponseNo. of
Respondents% of
ResponseYes 2 100 1 100No - - - -TOTAL 2 100 1 100
SOURCE: Field survey (2010)
From Table 4.14 above, it is evident that public enlightenment is carried out by the
local government council but this according to them is not that vibrantly carried
out.
4.3.3 Basis for determining rate nairage
Table 4.15: Basis for Rate Nairage
Chanchaga L.G.A Bosso L.G.AResponse No. of
Respondents% of
ResponseNo. of
Respondents% of
ResponseFixed by law - - 1 100Determined by budget needs
- - - -
Assumed estimates
2 100 - -
TOTAL 2 100 1 100 SOURCE: Field survey (2010)
From Table 4.15 above, the basis for the rate nairage is by assumed estimates for
Chanchaga Local government which it argued that it was varied by increase of that
nairage specified by law which the council in Bosso still adopts the rate nairage
specified in the law.
65
4.3.4 Property rating collection efforts by the local government authority
Table 4.16: Property rating collection efforts for Bosso Local Government Area
Year Estimated Rating Tax Revenue (N)
Actual Collection of Rates (N)
Percentage of actual collections to Estimated Revenue
2000 - - -2001 - - -2002 - - -2003 - - -2004 5,000,000 500,000 10%2005 - - -2006 - - -2007 7,808,000 - -2008 7,808,000 - -2009 7,808,000 2,000,000 25.61%
SOURCE: Revenue Department, Bosso L.G.A.
From Table 4.16 above, it is revealed that Bosso Local Government Area had
recorded a low collection ratio over the years owing to the fact that there was poor
collection and in most cases, no collection efforts were made but from 2000 to
2003. This suggests that there is weak administrative machinery in place to be
responsible for enforcing penalties and hearing appeal cases. This is shown in the
figure below:
2000 2001 2002 2003 2004 2005 2006 2007 2008 20090
0.05
0.1
0.15
0.2
0.25
0.3
Percentage of actual collections to Estimated Revenue
Percentage of actual collections to Estimated Revenue
66Figure I: Percentage of actual collections to Estimated Revenue in Bosso Local Government AreaSource: Field Survey, (2010)
Table 4.17: Property rating collection efforts for Chanchaga Local Government Area
Year Actual Collection of Rates (N)
Cumulative collection (N)
Growth rate of collection (%)
2000 1,500,000 1,500,0002001 1,125,000 2,625,000 -25.002002 1,375,000 4,000,000 22.222003 1,725,000 5,725,000 25.452004 1,925,000 7,650,000 11.592005 2,500,000 10,150,000 29.872006 2,125,000 12,275,000 -15.002007 2,750,000 15,025,000 29.412008 2,420,000 17,445,000 -12.002009 2,527,000 19,972,000 4.42
SOURCE: Revenue Department, Chanchaga L.G.A.
From Table 4.17 it is manifest that the actual rate collection of Chanchaga Local
Government is significantly low because if it were required to finance a capital
intensive project of about N10,000,000 in a particular year, they would have to
have waited for 6 years to raise that money implying that collect efforts are
significantly low.
Therefore, it can be deduced from Table 4.16 and Table 4.17 above, that the
collection of effort is minimal and although the actual revenue estimates targeted
for collection for Chanchaga local government were not available as is the case of
Bosso, given the target estimates for Bosso as a benchmark, the percentage of
actual collections to the estimated collections for Chanchaga Local Government in
2009 for example would yield only 32% and if the target estimates was higher than
that the percentage would decline. Plotting the line graph of the growth rate of
actual collections for Chanchaga local government in Figure II below, it is evident
that the collection ratio is fluctuating and much should be done regarding
collection of tenement rates in the local government areas.
67
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
-30
-20
-10
0
10
20
30
40
Growth rate of collection (%)
Growth rate of collection (%)
Years
Grow
th ra
te o
f col
lecti
on (%
)
SOURCE: Field survey (2010)
4.3.5 Rate Nairage in force
Table 4.18 Rate Nairage in force from 2000 – 2009 for Chanchaga and Bosso L.G.A. Areas
YEAR RATE NAIRAGE (%)2000 52001 52002 52003 52004 52005 52006 52007 52008 52009 7.5
SOURCE: Ministry of Local Government and Chieftaincy Affairs, Minna
From the table above it is evident that the Rate Nairage remained constant from
2000 to 2008 at 5% and varied to 7.5% in 2009 signifying that property rating has
remained constant over the years but with the inclusion of the Estate surveyors and
Valuers it was varied with an increment of 2.5% to incorporate inflationary
increases over the years.
68
Figure II: Growth rate of actual collections of revenue in Chanchaga Local Government
4.4 Assessment of the Appropriateness of the Techniques used in rating valuation of commercial properties in Minna
The arbitral fixing of rates by the local government staffs and the involvement of
Non-Estate Surveyors and Valuers are not appropriate as they do not comply with
the provisions of the of the law enabling property rating which specifies in Section
17 (1) for the use of the comparative/ rental evidence method where there are
comparables within the vicinity of the tenement being valued. Section 17 (2)
provides for the use of the Depreciated replacement cost method where it is
apparent to the Valuation Officer that tenement cannot be valued with reference to
the direct rent by the reason of the special nature of the tenement. And
alternatively, in Section 19 the Edict specifies the use of the profit method with
respect to properties that are not let. Hence any of these methods adopted for
tenement rating valuation would be regarded correct in the eyes of the law or
would be termed legal. Thus an assumption without recourse to a specified
approach set out in the law is not correct.
But the techniques adopted by Estate Surveyors and Valuers are considered to be
appropriate as they comply and are in consistence with the provisions of the Edict.
4.5 Salient Issues involved in Property rating Assessments in Chanchaga
and Bosso Local Government Areas.
1. Poor enlightenment campaigns:
Public enlightenment campaigns is a medium where by the public being assessed
for rating purposes is made aware of the exercise, its benefits and what it is needed
for. However, public enlightenment have not been successfully met with in the
study area as obtained from the analysis of the reasons for the use of the methods
for rating valuation from Estate Surveyors and Valuers, individuals possessed
69
uncooperative attitude of occupiers in giving useful information regarding profits
and rents as well as allowing easy access to tenements, because if they were really
aware of the approach to the rating exercise and familiarized with the valuers they
would have been more cooperative.
2. Weak implementation and enforcement machinery:
Although, most tax payers evaded and avoided the payment of taxes over the years
penalties were not enforced against them to pay. It is pertinent to note that to
ensure the success of any property rating exercise appropriate penalties prescribed
against known offences such as hindering the employees or agents of valuation
officers or rating authority, refusing or inciting persons to refuse to pay rate, illegal
collection of rate and other rate collection offences. The machinery for the
enforcement of payment of rates is yet to be constituted. Until this is done, it is
hard to measure the success or otherwise of the enforcement of the administration
and effective collection thus revealing that the exercise have not been considered
seriously by the local government authority as a good source of revenue.
3. Corrupt Practices: it was obtained by interview with the local government
staffs that collection of rates is carried out with payment made through agents of
the treasury departments of the local government. Most tax payers owing to the
liability of the tax pay negotiate with the rate collectors and pay less while some
evade total and since no penalty for taxation have been enforced against them, this
has been the practice over the years. Although this is seen to take a new turn as
Estate Surveyors and Valuers involved in Chanchaga Local government have
enforced payment to Bank accounts of the Council so that cheap mediums for
avoidance and evasion can be dismissed.
70
4. Inavailability of Updated Map And Land Cadastre:
The ease of carrying out property rating assessment is facilitated by the availability
of a good up to date base map of the locality and land cadastre information for the
purposes of identifying different hereditaments, zoning the areas and carrying out a
good inspection. It would also aid and enhance revaluations exercises. However,
the importance of an updated map to the rating exercise, it is lacking in both local
governments.
5. Shortage or Inavailability of qualified personnel:
There is shortage of well trained and qualified personnel which suppose to serve as
tool for collection of taxes and rates at the local level, even the few available are
not properly trained in efficient budgetary and financial management systems. The
local governments are short staffed to carry out their duties.
6. Lack of adequate information:
There is no up to date information about property rating assessment in the local
government board, and inadequate information leads to inefficiency in the
administration of real property taxation, it is also noted that where few areas
available they are not being properly stored and presented for future
reference.there by making it difficult for proper research to be conducted.
7. Lack of accounting records or books of account:
Adequate according records of businessmen, professionals and other self -
employed people should be kept for tax authority to fall on. A good tax system
must therefore encourage the keeping of accurate, honest and reliable accounts.
71
8. Lack of political will:
There is a lack of political will within both local government areas, which must be
in place for ensure sincerity and honesty to make sure that everybody pays tax
irrespective of social status.
9. Misappropriation of funds collected:
It was found by means of interview that the most of the funds collected were not
gainfully utilized for visible projects in the Local Government Area over the years
the funds were not sufficient enough to actualize there budgetary needs.
72
CHAPTER FIVE
5.0 SUMMARY OF FINDINGS, CONCLUSION, RECOMMENDATIONS,
AND SUGGESTIONS FOR FURTHER STUDIES.
INTRODUCTION
The issue of property rating valuation has a huge impact in the return expectations
and revenue to be generated from property rating exercises. However, the
techniques of rating valuation within the study area have assessed to ascertain the
accuracy and this chapter thus seeks to state the discussions of findings,
conclusion, implications, recommendations and suggestions for further studies.
5.1 SUMMARY OF FINDINGS
From the survey carried out in the study area being Minna which considered
Chanchaga and Bosso Local Government Areas and the data elicited through
interview, the following were establish:
That Estate Surveyors and Valuers were not involved in Property rating
Valuation from 2000 to 2008 in Chanchaga Local Government Area but
after so many trials by Local Government Officials through her treasury
department constituted mainly of Accountants and Non-Estate Surveyors
and Valuers, but have failed, the Local Government involved Estate
Surveyors and Valuers in 2009 indicating that their approach was faulty as
they employed arbitral fixing of rates
In Bosso Local Government Area, the council had paid attention to
involving Non-Estate Surveyors and Valuers but adopted Estate Surveyors
and Valuers in 2004 and has never involved any of her officers suggesting
that there is lack of skilled personnel in her authority as her staffs have not
been involved in rating valuation exercises.
73
Not all commercial properties were covered for rating valuation assessment
and owing to factors of bureaucracy which prolongs the exercise and bring
about a valuation of few commercial properties within the stipulate time
which is not fair and equitable on others who were not assessed.
During the research work it was found out that the techniques most
predominantly used for rating valuation are the rental evidence and cost
methods of valuation owing to reasons such as the lack of cooperation from
Occupiers signifying that there is need for much enlightenment campaign
programmes to be carried out regarding property rating exercises and the
benefits involved.
The study also established that there has been much reliance on the
replacement cost approach for the rating valuation of commercial properties
within the study area and this might not be very proper for use for such
commercial properties as hospitals, filling stations, schools, and hotels
which are run as profit making ventures and should been valued by the profit
method. However, because of the consistency with the law, it is appropriate.
The reasons for the use of the rental evidence and the cost methods for
property rating valuation of commercial properties by Estate Surveyors and
Valuers are as a result of the specification by law and the Uncooperative
attitude of occupiers in giving useful information regarding profits and rents
as well as allowing easy access to tenements this thus suggests that people
are not well enlightened about the benefit, need and importance of paying
tax else they would be more cooperative particularly where they are aware
of how they are been assessed.
Updating of valuation is not done implying that the list is allowed to be
outdated pending a general revaluation exercise.
74
Lack of constituted offices designated for property rating valuation
particular in Bosso Local Government and although available in Chanchaga
Local Government, they are not well equipped.
The collection of revenue in relation to the actual estimates is minimal and
did not accrue for some period between 2000 and 2009.
The investigations of this study also revealed that property tax rates are fixed
by local government and the authority held that the basis of the rate was on
assumed estimates.
Records are not adequately kept, which makes the retrieval of information
difficult when needed particularly the information on the assessed values to
explore its variance with open market rents to fully exact the accuracy of
valuation carried out.
5.2 CONCLUSION
This research work has carefully considered the techniques adopted for rating
valuation in Minna. It can be concluded from this stand point that the techniques or
approaches adopted by Local government Staffs within the Study area are not
accurate as they depend more on assumptions and arbitral fixing of rates to arrive
at the rateable value. Also the idea of contracting Non-Estate Surveyors and
Valuers for rating assessment is clearly inappropriate. The techniques put to use by
Estate Surveyors and Valuers are considered suitable as they are consistent with
the provisions of the law given that property rating is statutorily defined.
However, this is not without other salient issues as was identified ranging from
Poor enlightenment campaigns, lack of cooperation from occupiers, lack of
updated map, lack of updated statute and others identified in this work which can
discredit revenue potential from property rating. More so, the idea of much
reliance on the replacement cost approach in the rating valuation of commercial
75
properties such as filling stations, hotels, schools, and restaurants may not be ideal
because the profits of such businesses are not incorporated and hence, the profit
approach should be looked into.
From the stand point of this research, it is pertinent to mention that although the
applauded benefits inherent in property rating, it has not been taken with much
seriousness in recent past in the Local Government Areas and even if the right
techniques are adopted and the entire process not efficiently optimized in terms of
collection and enforcement of penalties, low benefits might still be recorded from
the exercise signifying that property rating is at its infancy and much needs to be
done to see it grow.
5.3 RECOMMENDATION
Based on the findings of this research, the following would be recommended:
1. Local government officials should as much as possible desists from
incorporating Non-Estate Surveyors and Valuers and employ the services of
more Estate Surveyors and Valuer in the process of property rating valuation
exercises.
2. Geographic Information System (GIS) tools and computer aided mass
appraisals (CAMA) should be employed to facilitate mapping of the cadastre of
the area and appraisal using multiple regression techniques. This would ensure
the coverable of all rateable hereditaments within the study area and the
maintenance of the record of all details of each liable owner or occupier and aid
mass appraisals within a reasonable period of time.
3. The existing legislation should be amended to allow for modern and emerging
techniques as well as the incorporating of new ideas and approaches to rating
valuation.
4. Rigorous and vibrant enlightenment campaign programmes should be carried
out which should be geared at letting people know the basis of the tax, what it
76
impinges on, and how they are been rated. This should be done by workshops
and face-to-face meetings with Estate Surveyors and Valuers and rate payers so
that they can be acquainted at that stage and foster maximum cooperation at the
stage of actual assessment as it would go a long way at ensuring the success of
the rating valuation exercise. And the transparency would encourage people to
give details of their business concerns.
5. Valuation list should be updated as frequently as possible to maintain a good
property base structure and maintain fairness and equity as well as the changing
economic conditions which also favours the increase of property values.
6. Central valuation office should be established in the Ministry of Local
Government and Chieftaincy Affairs to assess rateable properties and monitor
rate collection performance at the local government level through the
establishment of zonal valuation offices should be established and qualified
graduates of Estate Management be employed to man the offices.
7. In the same vein, Rating Units should be established in each Local
Governments for the purpose of Tenement Rates collection and documentation
of financial records and maintenance of valuation lists and rate defaulter’s
records. Officers of these units are recruited by the Local Government Service
Commission which is saddled with the responsibility of recruitment, training
and discipline of Local Government Staff.
8. Realistic tax rate should be set by the local government authorities. This is
because the practice of fixing rates without recourse to the budget and total
value of all hereditaments within local government areas should be dismissed as
it may not be feasible even if the right techniques where adopted and it is
recommended that the fixing of the rates should be determined by the model
below so that it would to equitable to all and sundry.
77
R = (T−C)
V x 100
Where, R = rate nairage
T = Total budget of the local government
C = Total income from other sources.
V = Total rateable value for all hereditaments within the rating area.
9. Property rating administration machinery should be strengthened and made
efficient by way of setting up of rating tribunals and the strict enforcement of
penalties against defaulters as well as ensuring that the statute is complied to in
every respect.
5.4 SUGGESTION FOR FURTHER STUDIES
From the conclusion of this study, it is suggested that the next researcher works on:
a. Modes for improving collection of property rating in Minna and environs.
b. The use of GIS tools is the assessment of rateable values of commercial
properties.
78
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