First and foremost, let us contextualise this. There is currently a housing deficit of 20 million units. If the average cost of production of these units is N5m that will be an N100trn market. What is the market capitalisation of the Nigerian Exchange Market? It is about N28trn. So, you are looking at a market potential that is four times the capital market. Having said that, the Securities and Exchange Commission’s rules allow retail investors to invest not more than 10 per cent of their income while institutional investors and high-net-worth individuals have no cap. With real estate crowdfunding, retail investors who ordinarily would not have been able to partake in real estate investments are now given the opportunity to do so. Further, developers on the other hand can solicit investments by leveraging the huge investor categories available on social networks. A major game changer in crowd-funding for real estate is that investors can now put far lower amounts of capital towards properties on a crowdfunding platform and they can earn returns on them. For example, on the Propcrowdy platform, you can invest as low as N10, 000. Summarily, crowd-funding has a massive future, and it is here to stay. This is already evident in emerging climes and more developed markets.
Crowdfunding will not raise an N100trn overnight and it is not certainly the only channel for closing this funding gap. But it is sure a new and innovative route outside of the traditional banking system. Crowdfunding initiative opens an alternative window to funding real estate and other allied projects and allows developers to have more access to cash at a lower cost and at a higher speed. The target of the initiative on the business-to-business side is small and medium-scale developers whose primary objective is to build affordable housing for the average Nigerian but who are too cash-strapped to fulfil this objective. Propcrowdy Limited creates a viable and sustainable solution for this class of developers by connecting them to funding from low and middle-income earners, who in turn become stakeholders in the projects (in the most direct sense) and potentially grow and expand their portfolios by investing in this asset class. In essence, it tears open the veil and allows the everyday Nigerian to enter the “holies of holies” of the real estate market in Nigeria.
As you know, the case for crowdfunding worsened with the emergence of unregulated agric-tech platforms, which are no more now, thanks to the SEC. The first and most critical mechanism put in place is that the SEC created regulations around crowdfunding. What we did at Propcrowdy was to pursue a license as our first order of business and submitted ourselves 100 per cent voluntarily to regulation. To obtain this license, especially being the first to do so, we have been subjected to thorough scrutiny and SEC has made sure that we are fundamentally in compliance with the strict provisions of the rules on crowdfunding. Our risk management infrastructure is exhaustive, but a few that come to mind are insurance of investors’ principal capital; deposit of investors’ funds with a custodian bank, which shall only be disbursed on a milestone basis; approvals of all listings by SEC; thorough due diligence on all fundraisers, including the promoters; collateralisation of title deeds and other documents of interest; etc. These and many other mechanisms have been put in place to inspire investor confidence and minimise risk to the bare minimum. This is not to say that these are 100 per cent foolproof, but measures have been put in place to ensure that confidence in the market only appreciates with the passage of time.
The benefits are enormous. Apart from democratising real estate investments, it also puts the power back in the hands of the people as to what the focus of developers should be, luxury properties that allow the housing deficit in the country to keep soaring or affordable housing which gives an average working Nigerian the opportunity to have decent housing at a more affordable rate, thereby reducing the housing deficit. Our Crowdfunding intermediary license gives a wider range of Nigerians the opportunity to look at the projects on offer on the Propcrowdy platform, make assessments on them and fund the projects that specifically meet their investment needs. This improves the access to affordable housing. This alone may not eradicate the challenges in the housing sector, but it lends a hand to curtailing the issues.
Yes, but tiny drops can make an ocean. We agree with the SEC on this cap based on the several conversations we have had and the spirit behind the rule, especially if you look historically at how Ponzi schemes and some of the agric-tech platforms have operated in the country. So, working with SEC, we are starting from the known to the unknown. As regulators, they want to watch the markets, and understand them. Interestingly, the rule also makes provisions for some level of flexibility on a case-by-case basis. So, beyond just regulating the market, the SEC is very open to innovations that develop the crowdfunding space. We believe that once we have proven ourselves as operators, the cap will increase.
Venture capital flows are majorly agnostic. Meaning it will flow to where it is first of all guaranteed of the return of capital and then, return on capital. To be guaranteed ROF and ROC, a market must be transparent and devoid of opacity. To achieve this, it means that data must be easily accessible. That is one major hindrance to investment in building technologies today. Another impediment is the low level of infrastructure in the country. The cost of power generation is inimical to the production of hardware technologies in the country. Most of the Internet of things available in the country today are imported. And all of these drive the prices up.
I will argue that the real estate asset class will continue to beat inflation in Nigeria. This is because it is still a sellers’ market. And I am not talking about the luxury residential market where you have empty buildings and apartments in major cities at price points that are above the reach of those who need accommodation. There are several factors responsible for why real estate will continue to outperform other asset classes and remain resilient. Some of these include population growth; inventory of affordable homes versus prices; location; infrastructure; rents; among others. 2023 is an election year. In the short term, house prices may crash temporarily because of a fire sale to fund elections but this is only temporary. The fundamentals will remain as they are post-election and real estate will continue to be resilient. The outcome of the elections will, however, determine how much fire sales we will experience in the market post-election as a result of people who will be in search of greener pastures outside of the shores of our fatherland.
Simply put, everyone should take classes in renewable energy and real estate; environment and social governance and green building. There are several online courses and advocacy on these subjects. It is not something any serious real estate professional should ignore. The consequences may take a bit of time, but in the next decade, ESG carbon emissions will be critical levers for funding real estate assets in Nigeria. They already are in developed markets. And the truth is that there are tons of incentives for developers to go green. Outside of saving the planet and ensuring wellness, there are billions of dollars available in carbon credits, loads of green financing, and grants as well.
No, this is a mere 1.5 per cent of the budget. And please note this is not a budget for housing alone. And most of it is for recurrent expenditure. While the government is not supposed to be involved in direct construction, the challenge with our housing budget for the last two decades is that there is no innovative implementation of government policies. We have well written robust policies, some of which I have been deeply involved in, but the implementation is at best poor. It is important to mention, however, that some government agencies over the last 5 years have made relatively very encouraging attempts at housing and they must be commended. These include the likes of the Federal Mortgage Bank of Nigeria, the Nigeria Mortgage Refinance Company, and the Family Homes Funds.
Having seen enough election cycles in my lifetime in this country, I think I would argue that it is not about what has been written in their manifestos or what they are campaigning about. It is about the will to execute. It is about the understanding that housing is an economic tool that will bolster the economic development of this country. We pray that the next administration will have the will to execute the housing policies.
