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Tunde Balogun is the co-founder/CEO, SmallSmall, a company that uses technology to democratise access to housing. He speaks extensively with DAYO AYEYEMI on how the current economic challenges affect the Nigerian real estate market as well as the Elite Developer Advancement Programme (EDAP) recently launched by the company with the goal to deliver 10 million homes across Nigeria in the next 10 years.
How has the forex regime and inflation affected the Nigerian real estate sector?
The volatile forex regime and inflation have significantly affected the Nigerian real estate sector, creating a challenging environment for developers and investors. It is scary to say the least. The instability of our currency coupled with fast-rising inflation has made it difficult for developers to import construction materials and equipment, as the cost of these imports can vary greatly from one day to the next. As a result, project timelines have been delayed and construction costs have skyrocketed, making it increasingly difficult for developers to complete projects on time and within budget. However, with the government’s commitment to implementing policies aimed at stimulating growth, there is still hope for the future of the Nigerian real estate market. It is crucial for stakeholders in the sector to remain resilient and adapt to the changing market conditions to ensure its long-term sustainability.
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Any connection with increase in the cement price?
In order to fully understand the relationship between inflation, Naira depreciation and the price of cement in Nigeria, we must first define these terms and then examine how they are interconnected.
Inflation is a general increase in prices of goods and services over a period of time. This means that as inflation rises, the purchasing power of the currency decreases. Naira depreciation refers to when the value of the Nigerian currency decreases compared to other currencies.
Now, let’s look at how these two factors impact the price of cement in Nigeria. As inflation increases and the purchasing power of the naira decreases, it becomes more expensive for companies to produce cement as they have to pay higher prices for raw materials and labour. This increase in production costs is then passed on to consumers in the form of higher prices for cement.
Furthermore, Naira depreciation also affects the cost of importing raw materials needed for cement production.
Let’s look at the rental sub-sector, how would you describe the segment currently?
One of the key consequences of rising inflation and currency devaluation is the increase in rental prices. As the value of the naira decreases, landlords and property owners have to adjust their rental rates to compensate for the reduced purchasing power of the currency. This has made it more expensive for individuals and businesses to rent properties, putting a strain on their finances. Whilst I agree that we need to give the current government some time for their policies to take full effect, sadly time is not on our side as a nation. Government needs to consider taking some drastic measures to alleviate the growing concern and frustration of the masses. It could be as little as the president addressing the nation on TV at least once a week, reassuring us the citizens that things will get better.
What type of residential apartments do people go for these days despite the economic challenges?
I think the question should be “what type of accommodation should people be going for in times like this?” A family of four living in a rented three-bedroom flat in their choice location whose finances have been affected, instead of defaulting on their rent, should consider moving to a two-bedroom flat in the same location or a cheaper location that could allow them to further save some extra cash. In times of economic crises, it is necessary to cut down on spending.
Tell us the latest about the RentSmallSmall model?
At RentSmallSmall, we’re now experiencing a full cycle adoption of the monthly rental model. Initially, we were struggling with supply to meet our high demand. This high demand was further confirmed with our widely published report in 2021 that showed that 88 percent of Lagosians would prefer to pay their rent monthly, but with a full cycle adoption, we are now seeing drastic increase in interest from landlords which has boosted our supply. RentSmallSmall is a pioneer in the monthly rental space in Nigeria and we have proven for the last six years that we have been in business that the model works. It protects the interest of both the landlord and tenants. Therefore, we are calling on more landlords to come onboard especially in a challenging time like this. Instead of watching and waiting for your tenants to default on their rent and put yourself through a strenuous process of eviction, you adopt RentSmallSmall monthly rental solution. We have built a structure that is tested and proven, one that will ensure landlords get their rent on time.
What are the challenges you noticed so far about the model?
In 2022, we rebranded and our company name became SmallSmall; RentSmallSmall became a product catering to the huge rentals needs, and we launched a new product called BuySmallSmall. The rebranding was done as a result of some of the challenges we identified in the market. Two challenges that were prominent were, the barrier is very high for young people to own homes and invest in real estate in Nigeria and we are not building for the younger generation. Most developers are building four and five-bedroom properties, whereas the biggest demand for housing is from young people and what they need are starter homes – studios and one-bedroom apartments. Since we launched BuySmallSmall, we have directly impacted the supply of studios and one bedroom in the real estate industry and we are providing a flexible payment plan, often termed alternative mortgage, for young Nigerians to become homeowners.
How can your models be improved?
For us at SmallSmall, It is all about the impact we can have on housing in Nigeria, and how we can move the Nigeria real estate market forward. When you check forward thinking countries around the world, real estate is usually one of their top three GDP contributors. Sadly, that is not our reality in Nigeria, even though the opportunities exist and we have the population. We need to scale access to housing in Nigeria and one area we believe we can further drive the need is by scaling our tested and proven models. Few months ago, we launched the Elite Developer Advancement Program (EDAP). The aim of EDAP is to identify developers who are truly passionate about housing in Nigeria, have a good reputation and track record in the industry, and they are looking to scale. With EDAP, our goal is to deliver 10 million homes across Nigeria in the next 10 years, and we’re going to achieve this with our selected developers. Some of the prominent developers that we’ve accepted into EDAP include Afriland, Homework, BlueSquare, Pennek.
In what area can the government intervene?
I think most people, if not everybody, want an enabling environment in Nigeria. An enabling environment where they can live and work without worrying about their safety and assets. I’m confident we will get there in a few years, but one way the government can bring some decorum into housing development is currency stabilization. No developer today knows the start and finish cost of their project, the currency fluctuation disrupts the growth and access we should have in housing.
How has technology helped the sector?
Technology is a powerful enabler for any industry in today’s fast-moving world. A people or nation that don’t seek ways to take advantage of technology are left behind. At SmallSmall, we won Lagos State Art of Technology Award as the Disruptor Startup of the year in 2022. We only won this because of the impact we have had in housing. Today in Nigeria, people can pay their rent monthly, they can start their homeownership journey with just five percent down payment, and they can co-own units with other people. Technology has allowed us to democratise access to housing. I believe in the next few years, the real estate sector is going to see more technology companies launch and together we will make real estate a top three contributor to Nigeria’s GDP.
What is your outlook for Nigeria Real Estate in 2024?
Real estate market in Nigeria continues to hold great promise, and 2024 won’t be different. With a growing population and technological advancements, the sector is poised for significant growth. However, tackling existing challenges is crucial to maximise the potential of this thriving market.
Fundamental issues like land ownership disputes, inadequate funding options, and bureaucratic red tape need to be addressed to unlock the full potential of the market. The government must prioritise reforms that simplify land acquisition processes and create an enabling environment for developers and investors.
Also, the government’s commitment to improving infrastructure will have a positive impact on the real estate market. Initiatives such as the National Housing Programme and the National Integrated Infrastructure Master Plan will create opportunities for both residential and commercial developers. Improved transportation networks and utilities will attract investors and stimulate economic growth in various regions. This shift will also facilitate foreign investment, as international buyers can easily explore and invest in Nigerian real estate from the comfort of their homes.
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