[Business Daily Africa] Why embedded finance can build Africa's real estate

Originally posted on Business Daily Africa

Africa's urban population has seen a boom over the last 35 years, with an increase in the number as well as the size of towns and cities, playing a key role in fostering rural-urban migration for millions of citizens who seek better fortunes and living standards across the continent.

This population boom, however, has not been matched with supply, as housing production has remained far below the targets and even further below the demand for housing. Most of the urban population, especially low-income households, cannot afford to buy or build their own homes and, as a result, most of the housing in towns is rental.

In Kenya, for instance, according to the 2019 census, a total of 4,660,027 Kenyans live in rental homes. Out of this number, 3,669,425 people rent in the urban centres while 990,602 rent in the rural areas. It is also estimated that 22 percent of Kenya's population in the major cities stay in slums.

The coronavirus pandemic led to a collapse in property sales. People are not viewing properties for sale, and transaction volumes are expected to decline into 2022 as well.

Affordability is a major constraint to the growth of the housing and mortgage markets, and a key challenge to accessing decent housing.

As a result, only about 20 percent of Kenyans living in urban areas own the homes they live in.

The rental housing sector is complex and involves the interests of both tenants and property managers. Recently, there has been a growth in the presence of digital platforms within this space seeking to bridge the gap between property managers and renters.

Despite the advent of such marketplace technology, both sides of this divide often encounter challenges, especially when it comes to meeting their obligations for a successful tenancy.

As a tenant, the first hurdle is usually finding a suitable house. House hunting in Africa is slowly evolving into an extreme sport. While it can be an adventurous and exciting exercise, especially if one is finally getting out of their parents' nest, it can also be a nightmare, both emotionally and financially.

There is the added risk of being conned when a simple request to view a house turns into a relay, where potential candidates pay a small fee before they even reach the real landlord.

In Kenya, there are apps to ease the house hunt by connecting tenants directly to landlords whose houses match the prospective
tenant's specifications for a small fee.

The second hurdle, most often experienced by the tenant, is the pricing. As mentioned, property prices in some areas are unattainable for sections of the population, and this is a challenge for people seeking quality housing at a low budget.

Key to these high costs is the fact that new tenants are often expected to pay a security deposit plus the first month's rent up front to access the house.

To solve this problem for renters and property owners, embedded finance platforms are starting to play a key role. In the US, fintech firms are building products designed to improve the financial lives of both renters and managers.