PROPTECH: A TOOL FOR CREATING WEALTH IN THE REAL ESTATE SECTOR (NIGERIA) BY EGBETOLA OLUWASOLA

 

AUTHOR: EGBETOLA OLUWASOLA

1.0. INTRODUCTION

The use of digital technology and the internet is the source of disruption across sectors and is currently transforming various industries. Founders use big data analytics to understand market trends and consumer preferences to make more informed business decisions. Consumer access to smartphones and mobile internet has greatly increased the use of digital platforms across different sectors. Founders are relying on technology to provide solutions in building a global brand with continuous improvement in productivity, quality, agility, and service delivery. 

 

We are currently in an era of smart, sustainable growth, and business entities are gearing towards solutions that would ease their processes and product & service delivery to consumers. Digital transformation has been immense. We experienced a surge during the pandemic, with a massive increase in the use of digital platforms, especially in the real estate sector. 

The real estate sector is embracing technology-driven solutions to replace its old business infrastructure, processes, and strategies to create a more productive and predictable business model. Investors have seen the value of technology to the real estate sector, and it is unarguable that the digital disruption is creating a new future for the real estate industry. It is believed that investment in proptech would record over $ 50 billion worldwide by 2023. 

Proptech is the future; it is changing how leading real estate firms manage their properties. We can streamline the importance of proptech into three main points;

1. Developing products and services that save time, and promote affordability. 

2. Developing solutions that can mine external and internal data in near-real-time, and facilitate transparency. 

3. Developing solutions that streamline operations from marketing and financial reporting to investment and property maintenance.

2.0. WHAT IS PROPTECH?

Proptech is an acronym for ‘property technology.’ It’s a term describing an ecosystem of startups offering technology-driven solutions across various aspects of commercial and residential real estate markets. According to James Dearsley and Professor Andrew Baum,

‘PropTech is one small part of the wider digital transformation of the property industry. It describes a movement driving a mentality change within the real estate industry and its consumers regarding technology-driven innovation in data assembly, transactions, and the design of buildings and cities.

The technology-driven innovation in the real estate sector includes, but is not limited to, the following:

1. Data analytical tools

2. Drones

3. Artificial intelligence

4. Internet of things 

5. Blockchain 

6. Smart contract

7. Financial technologies related to real estate 

8. Smart homes, and

9. Virtual reality 

These technologies are deployed in both the commercial and residential real estate markets. The market participants leverage the technology to create a more transparent market, less analog and improve real estate utilization. Fig 1 and Fig 2 provide pictorial explanations of the two market landscapes serviced by Proptech. 

Fig 1: Commercial Proptech Landscape

Fig 2: Residential Proptech Landscape

 

3.0 WHY NOW (PROPTECH)?

Our world is currently experiencing a global digital revolution, Poptech is playing a crucial role in the revolution, creating a more efficient and sustainable service delivery to both homeowners and tenants. 

The real estate sector is experiencing a late technology disruption compared to other industries, one of the major resistance to disruption is the uncertain feeling of homeowners adopting a new and unaccustomed means for the management of their most valuable asset. The world is changing and we have to adapt to modernization triggered by technology. 

We can summarise the why now into 3 as shown in fig 3 below (see Proptech Global Trends 2021)

Fig 3: Why Now (Proptech)

4.0. THE IMPACT OF PROPTECH ON THE REAL ESTATE SECTOR

The commercial and residential Propetech market is expanding globally, and technology-driven solutions emergence is evolving, making available data and analytical insights to enable investors and real estate owners to make informed decisions concerning investment and operating decisions. 

 

The real estate sector is evolving, affected by interconnected factors such as demographics, business structure, urbanization, consumer behavior, and globalization. With the adoption of technology, disruption in the sector has become more evident. As seen in the real estate value chain, there have been significant changes across the asset classes.  Fig 4 gives a detailed view of the disruption cycle. 

Fig 4: Disruption Cycle 

According to Deloitte's report, venture capital investment in real estate tech companies globally hit a record high of $31.5billion in 2019, an increase of 227% from 2018. The capital investment in the proptech space is increasing yearly with a projection of over $80billion by 2025. Fig 5 is a historical chart of investment in Proptech globally according to Real Estate Tech Venture Funding Report 

Fig 5: Global Investment in Proptech from 2018-2021

The impact of proptech in the real estate sector can be summarized into three, based on the areas foreign investors find attractive:

1. Streamlined Efficiency: The adoption of the proptech solution embedded with big data analytics has eased evaluating the development, investment, leasing, buying, and selling process in the real estate sector. The real estate stakeholders can experience a more secure remote transaction and digital contracting, creating a faster and easier buying experience. 

2. Cost-reduction: Technological advances have a great effect on shifting the supply curve to the right when such technology improves production efficiency. Adopting a Proptech solution embedded with automation tools aims at reducing the amount spent on unnecessary tasks, shrinking the chances of human error thereby creating efficiency in the delivery of services to potential clients. 

 

3. Improved decision making: Adopting proptech solutions help in netting off “the middle man’’ who often has misaligned interests in property purchase and sales, affecting clients' decision-making. With Virtual Reality (a Proptech solution), home inspections, house tours, and viewing transition to the virtual world can be conducted by clients from the comfort of their homes, thereby improving their decision-making. 

 

5.0. THE REAL ESTATE MARKET GAP IN NIGERIA 

According to the GDP report of 2021 published by the National Bureau of Statistics, the real estate sector contributed a total of 5.28% to the real GDP, estimated at $5.3billion. Fig 6 shows that the real estate sector is one of the top 5 sector contributors to Nigeria’s GDP see Nairametrics report on GDP 

Fig 6: GDP contributors (2021)

Consequently, on the viability of the sector, Mr. Gimba Ya’u Kumo (Former MD, Federal Mortgage Bank of Nigeria) posited that the value of the real estate market is about N59tn. He believed that the real estate sector is six times bigger than the local stock market, which is currently estimated at N12tn. 

Mr. Gimba’s valuation was obtained from the market gap (serviceable market), which is based on the numeric value of the housing deficit we face in Nigeria, which is estimated to be 17million units which, when multiplied by the average cost of a single unit sums into N59tn. 

In addition, if we run this same analysis using the population of Nigeria, which as of 2021 was estimated at a 211.4million. If we consider persons between the age of 30-45 will give us a market size of 34.67million people that can service the 17million housing deficit. This shows a huge potential for the real estate market, with huge revenues coming from solving the housing deficit and additional potential revenue from other related services. We can project over $2trillion from this market gap. 

The serviceable available market of the commercial and residential business is huge and valued in trillions of naira. Our Nigerian real estate entrepreneurs have been unable to tap into 10% of this market. The advent of technology has impacted the growth of the market over time. We believe we can still have over 50% market share from the serviceable available market by leveraging more on technology and expanding its use in the real estate sector. 

The sustainability of the real estate sector in Nigeria lies in how far we are ready to go to invest in technology platforms and solutions capable of connecting the demand area of housing need and supply area of the equation in closing the market gap. If technology adoption can push financial inclusion from 21.6% in 2010 to 64.1% in 2022, it is the best tool for closing the market gap in Nigeria. 

To achieve sustainability, we must overcome the significant challenge facing the sector -  Affordability - caused by the high cost of funds and production (construction). We all know the real estate sector requires enormous capital injection, and the cost of getting these funds tends to affect the affordability at the customer’s end. The advent of proptech is attracting foreign investors into the Nigerian real estate market; five proptech startups in Nigeria raised $ 2 million in 2021. The government needs to start creating policies to make the real estate sector more investor friendly.

6.0. USE CASES OF PROPTECH 

The World Economic Forum classified the PropTech sector into three major categories:

1. PropTech 1.0: Growth of online listing sites back in 2007

2. PropTech 2.0: Use of data analytics and virtual reality to offer better and more specialized services for customers

3. PropTech 3.0: Experimentation with emerging technology such as drones, virtual reality tools, IoT, and Blockchain, which are trending currently. 

Fig 7 below gives a detailed analysis of use cases of proptech to both developers and consumers. 

Fig 7: Proptech Use Cases

Proptech solutions have been created for the following areas in the real estate sector;

1. Real Estate Search: This is the most common Proptech solution that has existed for a long time. With the evolution of Proptech, it gets better, and the core features the solution would have are;

• Robust Geo-Mapping to convert salesforce list to a map

• A range of search operators & filters to ease and provide precise information 

• Built-in graphs and charts to visualize search 

2. Facility Management: This is a newly set up solution for the real estate sector, a more efficient means of monitoring properties virtually. The solution is powered by IoT and an extensive ecosystem of smart sensors that alert property owners of possible risks and ensure predictive maintenance. The core features the solution would have are;

• Built-in maintenance planning modules to identify issues with your facility long before an issue arises

• Built-in advanced management algorithms to offload piles of requests from tenants in order of urgency.  

 

3. Construction Management: This is now getting popular within the housing development scheme in Lagos and Abuja, we are witnessing an uprising of smart homes, and total reliance on technology from the architectural stage to construction to furnishing of the houses (residential & commercial). Smart homes rely on construction management tools which help to make plans and create and keep documentation throughout the construction projects. The core feature the solution would have are;

• Built-in project tracking tool to resolve any defects during construction via smartphone or tablet

• Real-time communication channel with project stakeholders and client

• Built-in CRM for sales after construction. 

4. Investment Management (Fintech Real Estate): This is financial technology related to real estate, it involves the adoption of financial tools to provide financial services for the real estate sector. We are having this solution gradually increasing within our ecosystem, financial services with a focus on the real estate sector; investing, lending, purchasing, and rent payment. 

5. Rental & Sales Tools: This is a proptech solution that aims at providing direct communication between tenants and property owners, making available house listings, and market overview. 

The aforementioned solutions (uses cases) are the available option opened to the Nigerian real estate sector. Tech entrepreneurs and property owners adopting these solutions are going to be a game changer in the industry.

6.0. CONCLUSION

The real estate sector is evolving through the business model innovation and product innovation driven by the deployment of Proptech into the industry. We are now in an era where global technology entrepreneurs and investors are paying more attention to this evolution. Proptech is raising the bar in operational efficiency, customer engagement, innovation, and workforce productivity. 

The evolution of proptech can be ascribed to a new digital reality disrupting the traditional business ecosystem. The embracement of technology structures such as; blockchain, alternative payment, BNPL, and AR&VR all create digital real estate ditching the traditional way of transacting in the real estate sector. 

Proptech is the future, we can not overemphasize the relevance of technology in any given industry. The advancement of technology would greatly impact real estate areas such as; construction, marketing, sales, and rentals. Proptech would solve problems both homeowners and tenants experience regularly, the capabilities of technology are endless. 

In Nigeria, with the recent rising of proptech, the real estate market will see more improvements in the coming years. The deployment of technology and apps will stir more movement within the industry. Proptech is the major tool for creating wealth in the real estate sector. 

There are many opportunities to get involved with proptech, and the time is now!!! 

7.0. REFERENCES 

• Proptech - The Future of Real Estate - Fully Verified 

• Re-building Africa on the wheels of PropTech | TheCable

• Property technology to disrupt Africa's real estate sector - Analysts

• Powering digital transformation through proptech | PwC Canada

• What is PropTech? (Importance, Startups and What/’s coming – Open Sourced Workplace

• Nigeria's real estate market worth 59 Trillion Naira - FMBN Boss

• What Is Proptech and How It Changed the Real Estate Industry

• Real Estate Sector To Experience Demand Surge in 2022 – Noah Ibrahim, CEO Novarick Homes – THISDAYLIVE

• Proptech: A disruptive force in Real Estate? | REflexions

• PropTech Global Trends 2021 - Annual Barometer

• PropTech: Using technology to enhance real estate transparency, By Inyene Ibanga

• The impact of PropTech on Real Estate Industry Growth

• Entrepreneur sees bigger prospects in the real estate market

• PropTech: The future of real estate in India 2021

• What Is PropTech? +History, Startups, Trends in 2021 - 2ndKitchen

AT ANCHORIT INTERNATIONAL COMPANY

We help organizations start a journey of business and technology transformation to fast-track their way to success.

Anchorit International is a driven IT solutions company serving businesses in different industries across the globe. As a registered Software company, we do not just build IT solutions for businesses, we establish a long-lasting relationship that ensures the businesses we serve to grow to their full potential and profits.

Let us make your dream come true!!!

CONTACT ME

Egbetola Sola 

(Product Counsel)
08138765200 (Whatsapp only)
ANCHORIT 

solaegbetola@gmail.com

Read More...

DIGITAL LENDING: A TOOL FOR EASE OF DOING BUSINESS IN NIGERIA (PART 1)

1.      1.0   INTRODUCTION

The term digital lending involves the use of a non-traditional platform (digital platform) to carry out origination, disbursal, and collection of credit for customers. It is a known fact that we are having innovative digital lending platform that have tapped into increasingly digitized and accessible customer data, advances in analytics and machine learning and lower-cost digital channels to design and remotely deliver digital products in seconds to a large connected global clientele.

The accessibility of credit to SMEs is a great challenge in emerging economies, such as Nigeria. It is a widely known fact that SMEs are the engine room for economies across the world, in Nigeria SMEs contribute 48% of Nigeria’s GDP, constitute 96% of businesses and provide 84% of local employment[1].

It is worthy to note that the bottleneck faced by SMEs through traditional financing; high interest rates and collateral security led to the establishment of alternative lending (digital lending) characterized by its flexibility, lower interest rate, ease, and speed of credit disbursement.

The ease of access to credit for SMEs is an important index in how the World Bank measures a country’s Ease of Doing Business. This criterion makes sense because if an economy does not facilitate easy access to capital; a critical component in creation of businesses and their survival, doing business in said economy would most likely be challenging.

The existence of a digitized credit system is one of the key enablers of attaining a sustainable development particularly in poverty alleviation in Nigeria. According to Global Findex, its 2017 database shows that the global share of adults who have an account with a financial institution or through a mobile money service increased to 69% in 2017 from 62% in 2014, and 1.2 billion adults have obtained an account since 2011. This share has also increased in developing economies, from 54% to 63%, amid gender constrains in account opening. Digital technology has become a key support and enabling pillar in the financial space worldwide. 'Technology giants have also moved into the financial sphere, leveraging deep customer knowledge to provide a broad range of financial services'.[2]

2.0.        THE CONCEPT OF DIGITAL LENDING

Digital lending comprises of 3 areas which makes it different from the traditional lending system:

a.    The use of digital channels

b.    The use of digitized data

c.    The focus on customer experience and engagement.

In other words, digital lending leverages on the use of digital channels such as; Smartphones, Mobile Applications and USSD (Unstructured supplementary service data) to reach new and existing customers at their convenience, so they can apply for credit, receive loan disbursement and make payment remotely. This can only be achieved using digitized data sourced from: call data records, bill payment histories, bank statements and credit bureau information. These data are fed into algorithms and analyzed to predict customer’s willingness and capacity to repay.

Unlike the traditional lending system that involves face to face and time intensive customer evaluation, digital lending focuses on the use of digital channels and digitized data to offer clients more convenient access, quicker approval, personalized communication and responsible products and pricing.  

The figure below gives an illustration of how digital lending works.

It is worthy to note that the digital lending ecosystem is complex and evolving daily around the world, this birthed the different digital lending models we have, some offer end-to end digital solutions, while other focus on a specific component of the lending process and leverage partnership to supplement their models. In other words, digital lending implies an end-to end process of developing and delivering data-driven financial products that are applied for, disbursed, and managed through digital channels.

3.0. THE DIGITAL LENDING MODELS

The distinct market structures, regulatory environments and customer needs have led to a wide variety of digital lending models aimed at easing business for customers in Nigeria. We have seven primary digital lending model:

1.    Online Lender: In this model the lenders offer a full end to end digital lending products for customers with no need for face-to-face contact. The entire process of customer acquisition, customer engagement and loan distribution are wholly digitized through a website or mobile application.

 

2.   P2P Lender: In this model a digital platform is designed to facilitate digital credit between many borrowers and lenders. It uses profiles and data to match borrowers with lenders, they also support repayment and collection processes of the credit facility.

 

3.   E-commerce and Social Platforms: In this model the digital platform does not focus on facilitating credit per se but leverage on their digital distribution, strong brand, and customer data to offer credit products to their customer base.

 

4.   Marketplace Platforms: In this model digital platforms are created to use proprietary algorithms to match a borrower many lenders for an origination fee. Once the funds are dispersed, the customer relationship is direct with the lender.

 

5.   Supply Chain Lender: In this model digital platforms provides digitized short-term working capital loans for microenterprises to purchase inventory form their distributors or for pas-as-you-go financing of an asset purchase within a supply chain or distribution network.

 

6.   Mobile Money Lender: In this model, their exist partnership with lenders and mobile network operators (MNOs) to offer mobile money loans to their customer base, leveraging mobile phone data for scoring.

 

7.   Tech-Enabled Lender: In this model, it involves traditional financial service providers that have embraced technology to digitize their lending process by adding digital acquisition channels or digital repayment options.

 

The major factor affecting the evolution of the digital lending landscape is innovation and market expectations with focus on providing customers with a faster, more transparent, and convenient service which are rarely provided by the traditional banks.

4.0. THE DIGITAL LENDING PARTIES (ECOSYTEM)

The digital lending ecosystem is composed of numerous niche verticals and various active players involved in the delivery of the product from a principal institution to an end user or vice-versa.

This ecosystem is of paramount importance to ensure that technological innovation is created to make financial services more efficient and to improve customer experience.

5.0.      THE BENEFITS OF DIGITAL LENDING

One of the biggest attractions to the embracement of digital lending is the time to decision making, the average time to cash for small business loans is almost 25 days, this is a waiting period for a small business that needs a cash injection in a hurry. The advent of digital lending greatly reduced the time for credit to 24hours through the automation of the verification processes and other manual processes previously adopted.

Furthermore, there are range of benefits that digital lending offers both financial institutions and consumers:

a.    Digital lending gives financial institution additional data points, such as browser cookies to conduct targeted marketing and direct outreach, enhanced controls of information outflow compared to human interactions as well as simpler way of testing to monitor performance and remediate challenges.

b.    Digital lending is beneficial to the customers due to its inclusiveness, affordability, speed, convenience, simple procedure, and documentation.

c.    Traditional lenders may be reluctant to grant loans to persons having no history of taking loans as they do not have proofs regarding their loan repayment habits but digital lending makes it possible for a first-time borrower to get a loan by relaying digitized data.

It is worthy to note that there has been a great shift from the traditional mode of lending to digital lending and this is attributable to the fact that the digital lending offers many benefits that may not be found in the traditional mode of lending.  

6.0.CONCLUSION

It is a well settled fact that availing credit is one of the major avenues to drive economic empowerment. Availing credit through digital optimization would foster equal access to credit facility to everyone especially those at the bottom of the pyramid, SMEs will grow, and business will expand enough to create employment opportunities which is supposed to drive our economy.  

One major challenge posed by traditional lending is the issue of credit concentration, more than 40% of loans granted in Nigeria are within three sectors; oil and gas, construction and maybe government, this is the reason when we have issues around oil prices, non-performing loans in the industry go up. With the advent of digitized lending, credit is available to different sectors in the country, and it will help our economy.

Generally, the advent of FINTECH aims at solving the issue of financial inclusion in Nigeria, EFInA data shows that only 64% of Nigerian adults were financially included by the end of 2020, meaning that 36% of Nigerian adults, or 38 million adults, remain completely financially excluded, with only 45% of women using formal financial services compared with 56% of men. The digital lending platform been part of FINTECH solution contributes positively to resolving the issue of financial inclusion as a woman in Sabon Gari and Balogun Market have equal access to such opportunity in accessing credit.

Egbetola Sola is a budding business lawyer, based in Lagos, he is passionate about helping business owners maximize their opportunities using legal tools. He works as a chief operating officer for a fintech startup

He is also a tech enthusiast with a commitment towards legal and tech innovations. He is a certified product manager and software developer. 

E-mail: solaegbetola@gmail.com, 08138765200

---

[1] SMEDAN and National Bureau of Statistics Collaborative Survey: Selected Findings (2013) < SMEDAN 2013_Selected Tables.pdf > (accessed 19^th July 2021).

[2] The Ease of Getting Credit Reforms in Nigeria https://www.proshareng.com/news/Credit%20Services%20&%20Registry/The-Ease-of-Getting-Credit-Reforms-in-Nigeria/48434 (accessed 19th July 2021)

Read More...