EXAMINATION OF AGENCY CONFLICTS IN PROPERTY MANAGEMENT IN INFANT MARKETS

Rebecca Milamo and Moses Kusiluka

AfRES from African Real Estate Society (AfRES)

Abstract: Property management sector in Tanzania is still at its development stage, which is likely to expose it to more acts of opportunism owing to the inadequacy of institutions to regulate the conduct of various contracting parties. This study aimed at examining the nature, extent and mitigation techniques of agency conflicts in property management in Tanzania. It involved exploring activities of selected large institutional investors. Data collection entailed interviews with senior official representatives of the selected institutional investors, property management firms and reviewing management contracts and reports. The study revealed that property management practice in Tanzania is exposed to agency conflicts due to lack of transparency and comprehensive institutional framework for guiding the practice. The practice was noted to be exposed to both adverse selection and moral hazard problems. Property management firm selection process exposed the investors to adverse selection. Inadequate experts and non-payment of letting fee exposed them to moral hazard. Similarly, property management firms were exposed to adverse selection in the process of hiring their professional staff. Moral hazard was mainly associated with receiving rent in cash, mismanaging service charge account, and dishonesty and non-committed staff. Performance incentives, contract term and monitoring were noted to be commonly employed by principals in mitigating agency conflicts. Moreover, slight deviation of theory and practice in mitigating agency conflicts such as provision of long-term contracts and stock options was noted. To address some problems, it is recommended that a specific law catering for property management practice should be enacted. A regulatory body and professional institutions should also be formed to strengthen the profession, enhance transparency and protect the interests of different parties. Furthermore, institutional investors should restructure the contracts and employ more property management experts.

JEL-codes: R3 (search for similar items in EconPapers)
Date: 2015-09-01
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