Amid paucity of funds and advances in technology sweeping across most industries on a global scale, operators in the Nigerian real estate sector are adopting the concept of crowdfunding, as an inevitable source of funding project.
The industry described by experts as capital intensive has overtime been badly impacted by inaccessibility to land, stifling mortgage systems, difficult land titling procedures, multiple taxes, and archaic registration process as well as a general absence of the enabling environment for it to thrive.
Despite the retinue of economic woes militating against the sector, it remained the fifth biggest contributor to Africa’s largest economy with a Gross Domestic Product (GDP) of -5.92 percent as of 2017. According to the National Bureau of Statistics (NBS) in 2018, the construction sector grew by 7.66per cent in Q2 2018 from 1.54per cent in Q1 2018. Although real estate contracted by -3.88per cent in Q2 2018 from -9.40 in Q1 of the same year, it was higher than the 5.87per cent reported in the preceding quarter due to improving funding led by the private sector and government in high-end developments in some major cities.
With the growing rate of urbanization in cities estimated by town planners at over 6per cent, a population of over 170 million and the desire for shelter and economic prosperity, developers and individuals have further developed a way to survive these harsh realities of the industry particularly finance through crowdfunding.
Crowdfunding involves a large pool of investors who individually contribute a small amount toward the achievement of a big investment goal. Apart from the traditional means of funding development that requires having large lump sums of money; the model is a non-traditional, non-bank financing source that utilizes diverse networks of friends, family, associates, and colleagues.
Additionally, various mainstream and social media platforms like, newspapers, television, FaceBook, Twitter and others are used to attract investors and finance pool.
According to investigations, prospects in the scheme earn a percentage of income made from their investments rather than directly own the property. Currently, the idea is attracting serious interest and has the potential to trigger a positive revolution in the property sector.
According to real estate crowdfunding report, the model continues to be a dynamic and ever-evolving one and it’s predicted that by 2025, the sector as a whole would be valued at an estimated $300 billion while online real estate marketplaces are primed to capitalize on the potentially explosive growth.
It further stated that more than 175 of such model are in operation globally and in many cases, highly competitive with Real Estate Investment Trusts (REITs) and can offer similar or better returns.
Expounding on the development, an official of LandLagos Development Company, one of the groups driving the initiative in Lagos, explained that the whole idea is to enable investors and the public to become part of a movement by investing in residential and commercial buildings and in turn, earn solid returns on capital as a development partner.
An official of the firm, Patience Ndakson said through the scheme, partners get 25per cent returns on investments in 12-months while the housing units are divided into development shares that range from 50 to 85 development shares.
“When you come as a development partner, the money you are bringing in would be used to develop buildings and property for sale. As a financial partner, you are guaranteed a 25per cent return at the end of twelve months. Properties are built and designed with attention to detail and are located in an economically thriving community”.
“For instance, if you come in with N1m, you will get N250, 000 return at the end of 12-months and so the investor would be paid back one million, two-hundred and fifty thousand at the end of twelve months”, she said.
According to her the initiative which has been on for more than 7years is under the divergent enterprise and the partnership is only open for a limited period of time. She stressed that a lot of people are really keying into the idea because banks wouldn’t give the kind of return which the initiative offers prospects. This, she said, was the attraction by investors.
“We have a benchmark of what we want and once we get the benchmark, we close the window automatically”. The Chief Executive Officer Fibre, Obinna Okwodu said, the idea is to make it possible for people who don’t have access to investing because capital is too high, to come together and invest in property.
“Real estate has been an asset class with a high barrier to entry. To make it more accessible, we’ve divided each property into shares, which are virtual portions of a property. Purchasing a share of a property through our model means that you are entitled to returns proportional to your ownership. You can choose to hold or sell your stake at any time it belongs to you”.
He said the scheme is a flexible real estate investment vehicle and by investing through the platform, prospects can purchase shares of residential real estate and earn returns through the fully managed rental.
“We have realized that there is a way you could make more people own property or invest to increase the amount of supply in the market. Anyone can participate as long as you can be identified and are legally eligible to under the laws of the residence. We currently have a ₦100,000 investment minimum”, he said.
On the acceptance of the scheme, Okwodu stressed, “I think the idea is picking up because real estate is a different asset class. It is not agriculture that doesn’t give high returns in the meantime and you don’t have the means to exit. From the feedback and results we are getting, is going to grow in the nearest future”.
Real estate observers believed that as time rolls by Crowdfunding would take its full hold in Nigeria if creditably sustained by operators and also call for enabling law by authorities that could allow crowdfunding to effectively thrive in the country.