In times past, ownership of property was a sign of wealth and one of the primary ways for the wealthy to tie down their assets for posterity. Now that we are in the 21st century, not much has changed since then. Being a homeowner is still the dream of many people, whether old or young.
Some have posited that members of the baby boomers generation (1946-1964) own the bulk of real estate, followed by Gen X (1965-1980) and millennials (1981-1996). Interestingly, though, one article I read opines that Gen Z (1997-2012) is finding a way into real estate investing while revolutionising the industry in the process. According to the author, members of Gen Z, particularly in developed economies, are leveraging the disruptive power of technology to democratise real-estate investing and bring their peers into the fold. For example, rather than buying a property to live in, they’re leveraging crowdfunding and the sharing economy to take ownership of houses, buildings, or commercial properties.
While this may be a budding development in advanced economies, the reality of property ownership is quite different for many Africans. Take Nigeria, for instance. There is a shortage of affordable mortgage or financing options, so owning a house would require more than a sizeable amount of down payment. No wonder Nigeria’s apex bank, the Central Bank of Nigeria, put homeownership in the country at 10 per cent compared to 72 per cent in the United States and 78 per cent in the UK.
The high cost of construction materials, a drastic increase in land prices, and excessive financing costs have also made owning a property a lofty dream for many families. Even more weighty and expensive are the heaps of responsibilities like property tax, maintenance, and insurance that come with property ownership.
And then, there are families whose income is barely enough to pay for rent. Given this, how can technology provide solutions to housing-related needs and requirements? What solutions could be leveraged to create better access to professional information and market insights in the real estate industry? The short answer is property technology, most popularly known as proptech.
In simple terms, proptech is the use of information technology (IT) to help individuals and companies design, construct, buy, rent, sell, manage, and make decisions on property investments. Just like how edtech adopts technology to address issues in education, proptech uses modern digital innovation to address the needs of stakeholders-developers, investors, buyers, renters, and property management companies-in the property industry.
The fact that proptech as a sector is growing rapidly in market size and scope makes a compelling case for the transformation of real estate across the globe. In 2019 alone, global funding for proptech reached $13.85bn. Though the pandemic may have slowed things down a bit, it has unsurprisingly fast-tracked the industry’s digital transformation while birthing innovative proptech startups globally.
The cost factor
Proptech startups are redefining traditional processes in the real estate industry. They range from companies providing developers with innovative digital platforms to save money and time on building sites, to furniture delivery companies.
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If you have ever enlisted the services of a credible proptech platform, you will agree that digital real estate platforms can help to ease the process of securing a house. Proptech startups like Spleet and Rent Small Small are helping people in Nigeria rent houses without needing to pay costly upfront fees. Others, like Estate Intel, a data-as-a-service platform, are providing data that allows organisations interacting with the real estate and construction industry to make faster and smarter decisions.
From finding a good landlord in your search for an apartment to getting crucial insights from real estate experts, and making the process of purchasing or renting an apartment a lot easier, proptech startups shine when it comes to tackling the problem of house availability. On the other hand, there is the not-so-tiny problem of affordability. In terms of cost, real estate platforms appear to be a niche market that caters to high-net-worth individuals. After all, there are not many- if any- minimum wage earners (#30,000) that can afford the services of somewhat pricey homes listed on many proptech platforms.
Using Nigeria as a case study, what experience could proptech create for the teeming population with housing needs? How can technology help in creating such an experience? Let me explore two ways this can be done.
Homebuyers need access to capital to become homeowners. This is where proptech intersects with fintech. Fintech startups can turn the dreams of hopeful buyers into reality by expanding their access to capital through innovative financing schemes. Some of these may include designing affordable mortgages tailored to fit a borrower’s unique situation or using shared-equity financing to help borrowers purchase a home with a fintech partner who pays part of the down payment in exchange for an equity stake if the home is sold for a profit.
For those who cannot or do not want to immediately purchase a home, proptech startups could explore a rent-to-own business model. They could borrow a leaf from Airbnb’s playbook that successfully helped the company disrupt the vacation rental market. In the Nigerian context, where low-income households far outnumber high-net-worth families, rental platforms can play a key role in providing affordable and adequate rental housing.
At the end of the day, technology can only do so much without the government’s intervention. That being said, the government can promote long-term policy changes to address existing barriers to housing accessibility, often linked to the high cost of urban land, poor infrastructure, and disputes around land ownership. By setting up urban policies that incentivize strategic land allocation and formalisation, eco-friendly construction (green buildings), the government can bridge the housing gap between the rich and low-income households.
Given that technology is always in search of a problem to solve, policymakers and tech players should take advantage of proven, cost-effective technological solutions to build affordable, livable, and sustainable housing.
