An Examination of Agency Conflicts in Property Management in Infant Markets

Rebecca J. Milamo and Moses Mpogole Kusiluka

ERES from European Real Estate Society (ERES)

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 theinadequacy of institutions to regulate the conduct of various contractingparties. This study aimed at examining the nature, extent and mitigationtechniques of agency conflicts in property management in Tanzania. Itinvolved exploring activities of selected large institutional investors. Datacollection entailed interviews with senior official representatives of theselected institutional investors, property management firms and reviewingmanagement contracts and reports. The study revealed that propertymanagement practice in Tanzania is exposed to agency conflicts due to lackof transparency and comprehensive institutional framework for guiding thepractice. The practice was noted to be exposed to both adverse selectionand moral hazard problems. Property management firm selection processexposed the investors to adverse selection. Inadequate experts and nonpaymentof letting fee exposed them to moral hazard. Similarly, propertymanagement firms were exposed to adverse selection in the process ofhiring their professional staff. Moral hazard was mainly associated withreceiving rent in cash, mismanaging service charge account, and dishonestyand non-committed staff. Performance incentives, contract term andmonitoring were noted to be commonly employed by principals in mitigatingagency conflicts. Moreover, slight deviation of theory and practice inmitigating agency conflicts such as provision of long-term contracts andstock options was noted. To address some problems, it is recommendedthat a specific law catering for property management practice should beenacted. A regulatory body and professional institutions should also be formed to strengthen the profession, enhance transparency and protect theinterests of different parties. Furthermore, institutional investors shouldrestructure the contracts and employ more property management experts.

JEL-codes: R3 (search for similar items in EconPapers)
Date: 2016-01-01
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