Experts list challenges of real estate crowdfunding
Crowdfunding has faced couple of challenges in Nigeria’s real estate sector because of lack of trust, transparency, regulations and standardisation. Although seen as a game-changer in real estate investment, crowdfunding seemed not to have reached the expected mileage.
Experts say, lack of standardization and regulation has affected the growth of crowdfunding in Nigeria …
… the Managing Director, Propertygate Development and Investment Plc, Adetokunbo Ajayi, said crowdfunding is an alternative finance option for raising capital to finance a project or venture which usually entails raising small amounts of money from a large number of people, typically via the internet. Characteristically, it involves a call to the crowd or public for relatively small individual contributions to achieve the big investment goal of a project or venture.
He said: “The fundamental thing we should not lose sight of is that virtually all jurisdictions seek to protect the public, and as such, will be interested when promoters enter the public square to canvass for funds from people.
“The law does not impose rigorous requirements on promoters who seek funding for their projects and ventures by private arrangements. The problem will arise when invitation to the public is embarked upon without appropriate regulatory approvals.
“For instance, it will be against the law for a real estate operator embarking on a development project to mount the rostrum in forms of online publications or/and through other public media like the newspapers, radio and television inviting the public by way of crowdfunding to advance or deposit money to a project or venture with a promise to return the money with interest at a given time or to become shareholders (owners) of the properties on completion, with further promise of rental income and operation without regulatory approval.
Such action will be in violation of the Nigerian laws such as Nigerian Investment and Securities Act, Companies and Allied Matters Act, Banks and Other Financial Institutions. As at date, the legal framework for crowdfunding is yet to be enacted.
Mindful of the benefits crowdfunding, the Nigerian Securities and Exchange Commission in a bid to foster economic development and deepen the market released for public consideration in March 2020 a draft regulatory framework for crowdfunding operation in Nigeria. While this is a step in the right direction, the rules, he said, as proposed may not be cheerful to real estate operators.
The maximum fund a promoter may seek, in the case of medium-sized company within a year cannot exceed N100million, this being the maximum. This is paltry for capital-intensive venture like real estate. While clear exemption is made for MSME in digital commodities and those that the Commission may exempt from this limit, it is not clear if real estate projects will enjoy exemption.
According to him, a perusal of the rules show a real estate operator desirous of leveraging crowdfunding need to comply with very elaborate requirements.
“This may be unattractive considering the small amount of capital that can be sourced, which again has to be over a time frame. “Detailed study of the rules needs to be made to see the benefits they offer to operators.
“It is important to note that the rules are proposals and not yet in force. As at today, a real estate operator bent on funding its project or business by crowdfunding will have to ensure the provisions of relevant laws with respect to invitation to the public and other requirements are complied with. This will unfortunately be crowdfunding without the benefits of the fundamental character of the concept”, he said.