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.

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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 .........................

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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.

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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.

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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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