Though crowdfunding will not raise N100 trillion funding gap in the Nigerian real estate sector overnight, it is expected that when effectively implemented, it can contribute to closing the gap.
With regulation and other necessary measures, it can inspire confidence in not only the real estate market but also parties to the initiative which had suffered trust deficit in other sectors of the economy.
Nigeria’s housing deficit is estimated at 20 million units. A conservative cost of production of each unit at N5 million gives N100 trillion as the market value of the deficit which is higher than the market capitalisation of the Nigerian Exchange Limited at about N28 trillion.
As a new and innovative route to raising funds outside the traditional banking system, crowdfunding opens an alternative window to funding real estate and other allied projects and allows developers have more access to cash at a lower cost and at a higher speed.
“Crowdfunding, in most cases, targets small and medium scale developers whose primary objective is to build affordable housing for the average Nigerians who are too cash-strapped to achieve this objective on their own,” Roland Igbinoba, Founder/CEO, Propcrowdy Limited, said.
Igbinoba said crowdfunding creates a viable and sustainable solution for developers by connecting them to funding from low- and middle-income earners who, in turn, become stakeholders in their projects
He added that crowdfunding grows and expands the developers’ portfolio by investing in real estate assets. “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,” he said.
Recently, the Securities and Exchange Commission (SEC) licensed Procrowdy to float a Crowdfunding Intermediary Initiative which comes with enormous benefits that will ultimately contribute to reducing the housing deficit.
Apart from democratising real estate investments, the initiative will also put power back in the hands of the people as to what the focus of developers should be —whether to focus on luxury properties that allow the housing deficit in the country to keep soaring, or affordable housing which gives the average working Nigerian a chance to have decent housing at a more affordable rate.
“The initiative will also give a wider range of Nigerians the opportunity to look at the projects on offer, make assessments on them and fund the projects that specifically meet their investment needs. This improves access to affordable housing,” Igbinoba said.
Nigeria had seen cases of crowdfunding in the past which could not stand the test of time and worsened with the emergence of unregulated Agric-tech platforms, which are no more now.
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But SEC has created regulations around the real estate crowdfunding, which was why, according to Igbinoba, Propcrowdy had to pursue a license as its first order of business and submitted themselves voluntarily to regulation as a way of engendering trust from stakeholders.
“Our risk management infrastructure is exhaustive. 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; approval of all listings by SEC, thorough due diligence on all fundraisers, including the promoters; collateralisation of title deeds and other documents of interest, etc.,” he said
The reason for putting these mechanisms in place is to inspire investor confidence and minimise risk to the barest minimum, pointing out however that this is not to say that the measures are 100 percent fail-proof, but are there to ensure that confidence in the market only appreciates with the passage of time.