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How to ensure alternative funding for domestic real estate platforms

By Olayide Agboola
07 June 2021   |   3:55 am
The real estate platform in Nigeria, like in other countries of the world, is fast becoming a profitable venture market.


The real estate platform in Nigeria, like in other countries of the world, is fast becoming a profitable venture market.

Over the years, the business of real estate has proven to have a high level of appreciation rate in value, and people are making millions from their investments in the business.

When you hear millions of Naira, the thoughts are likely going to be, “how is that possible?”

Let us take a look at the facts. Lagos is currently the most expensive city in Africa. Based on the data from Global Property Guide, the average cost of a standard house in Lagos island is about 150 million naira ($393.700) – 450 million naira ($1.18 million). In Lagos mainland, the average cost of a standard house starts from about 100 million Naira.

A closer study at the returns on the investments in Lagos properties puts the average yield of residential properties on Lagos island at about 3.64 per cent per annum and on Lagos mainland, about 4.30 per cent per annum according to the Residential Auctions Company.

Interestingly, Lagos mainland has a higher turnover because it’s a seller market. This means there are more people available to buy or rent than properties available. This also shows that it is a profitable market.

Alternative Funding Sources
One of the key features of real estate is diversity. The real estate business in Nigeria, as well as other countries, present diverse forms of finance and investment plans. A safe bet, there is always something in it for everyone looking to expand their investment plans and make good returns in the business.

Yet, with the increased lender guidelines, it has become arduous, time-consuming, and sometimes costly to get a bank loan for acquiring properties. However, there are alternative sources of finance to explore.

These alternative sources provide faster access to finance for real estate platforms. This facilitates growth in the business, which will equip investors and lead to productivity in the business sector. These alternatives include, peer-to-peer lending, equity crowdfunding, and retail bonds.

Peer-Peer Lending
This allows established real estate platforms with predictable returns and credit history to outline their requirement for funding. The amount of money they intend to lend and what for, the investors look at the credit history, bid in their amount and state how much interest rate they intend to receive beside their money.

Peer-peer lending can be a good option for several real estate platforms, especially startups.

Equity Crowdfunding
Equity crowdfunding gives room for attracting potential investors to generate capital for the funding of a profitable project that will benefit both parties. The process involves pitching an investment plan to bodies with funds, to invest in exchange for equity, which is a share of ownership of the property or business.

Real estate crowdfunding is fast becoming a rewarding industry. The World Bank predicts that by 2025, the industry will be worth $93 billion. Therefore, we can say that over 10 per cent of the worth of crowdfunding is expected to come from real estate.

Retail Bond
In essence, bonds are an IOU debt instrument issued by a company. About real estate, the buyer of the bond is given a fixed return yearly for a stipulated number of years. At the end of the set time, the bond can be reclaimed. Investors can opt for retail bonds if one is looking for a short-term return.

Saving Yourself From Poor Investments
Just as with every other investment, there are risks and downsides. Nevertheless, in real estate, it is equitable to say that there is no such thing as a bad investment. We learn from our mistakes and it helps us thread wisely and make wiser decisions next time.

However, to stay thriving in the real estate business, there are key elements to pay attention to:

In every business, data is vital. In fact, data is your key to unlocking a profiting scheme in the real estate market. Studying the market of your business is just as important as the running of the business. The data collected is the board to go back to, to create strategies of penetrating the sales market, securing the interest of your target audience and understanding how the estate market works in other countries.

Considering the drop in the exchange rate of naira to dollar, the need to invest in foreign ventures is recommended giving the triple exchange of dollars to naira. Without data, the area of redundancy cannot be found and worked on.

If one plans to enter the real estate market with a quick cash mindset, real estate is possibly not for that individual. Profiting from real estate takes time, it’s a long-term process. Although there are short-term plans including short-term rental which offers home seekers a short time to stay in an apartment building and payment is made afterwards, there is also the fix and flip plan, which involves buying a property, renovating and selling it off, while the investors share the proceedings (which doesn’t happen in a matter of weeks).

Build relationships internally and externally
When a person starts working, regardless of the nature of the job, marketing begins. Present colleagues can be your future investors.

Building a relationship with people at the workplace is vital. For instance, when one decides to market a product or an initiative, the first people to target are people you know. When the relationship is sour, it becomes difficult to get through to them. Families, friends, colleagues and acquaintances are all potential investors. Treat them as such. Our personality is a product, we need to sell it in a presentable way to sell your business.

Essentially, in real estate, value comes before profit. The quality of every organisation is measured by the authenticity of its product and services. That authenticity is what gives people value and builds a legacy that stays respected for years to come.

• Agboola is Founder/MD, Alternative Capital Partners (ACAP), and Co-Founder, PURPLE