It’s just good business to offer your customers options for making payments. These options can include payment plans using credit or debit cards, online payments, checks, cash, loan, money orders, automatic withdrawals or western union to acquire services or products. “People tend to resist that which is forced upon them. People tend to support that which they help to create,” says author Vince Pfaff in one of his quotes. I am sure you can relate to this quote and so can your customers. When you call a past due customer and demand payment in full you won’t get as far as if you called and offered a couple of different options for payment plans. Findings have revealed that flexible payment options established by product manufacturers, or real estate developers/investors, satisfy the customer’s urge for his or her dream product at a time when bulk cash to pay for the item is not readily available. Real estate developers admitted that beyond their aim of satisfying customers and making life comfortable for them, the flexible payment option is one of their many strategies to push sales, create space for new stock and encourage people and businesses to patronize their brand. In other words, flexible payment options or installmental payment, they said, is a welcome development to their business.
In today’s world where housing or space is a necessity of life, the ability to own or lease space immediately has become a do-or-die affair. Due to the capital intensive nature of producing real estate, developers and investors have had to establish innovative approaches to provide alternative means to finance and acquire their projects as efficiently as possible. In the Nigerian context, flexibility within commercial and residential real estate options are quite limited. Nonetheless, certain options are still plausible.
Historically, in Nigeria, flexible payment options barely existed within the commercial space. The primary reason for this is the cost of the financial instruments utilized by developers for their projects. The availability of financing for Nigerian projects is very limited. When available, the costs tend to be very high and short term in nature. Developers have also obtained financing in dollars, which has been the “cheaper” option vs loan from naira denominated banks in Nigeria. As a result of these limitations and short-term nature of their financing, developers have had to request for upfront payments of one to five years. They have done this to cover their short-term obligations to counter the risks of non-payment in the Nigerian market which was historically considered not sophisticated.
Recently however, changes have occurred encouraging developers to rethink their flexible payment options. A key component driving this change is the current market condition whereby a spike in supply of office buildings has been met with a drop in demand as a result of sudden decrease in oil prices. The impact has rippled through the Nigerian economy affecting all businesses alike, both international and local. In response to this, developers have begun to consider incentives including flexible payment options. Quarterly payments are now being proposed particularly for the class ‘A’ offices in the Lagos new CBD areas of Ikoyi, Lekki and Victoria Island.
Will this option remain post oil prices recovery?
This is yet to be seen. However, based on human nature, it will be difficult for developers having offered this option, to justify removing it upon the economic recovery of Nigeria. Perhaps the changes that will occur will be to the financing instruments being considered by developers. Long term financing options or partners such as pension funds who have longer-term strategies could become the defacto option for developers. This will allow them begin or in this case, continue to consider flexible payment options especially in their bid to entice tenants with solid covenants.
Contributing author: Tolu Ige