In just four years, Spleet, a property tech startup, has evolved from an idea aimed at addressing a common housing challenge in Lagos to planning expansion into Rwanda and Ghana.
Dolapo Adebayo, the founder of Spleet, was faced with an expensive dilemma when he was ready to move out of his parents’ home. In many Nigerian states, renting a house involves paying a full year or even two years’ rent upfront, excluding additional costs.
These up-front costs can be overwhelming, especially in cities like Lagos where property prices are high. To address this issue, Dolapo co-founded Spleet with Akintola Adesanmi. Spleet provides an innovative solution that helps people rent homes in Nigeria without the need to pay hefty upfront fees. Instead, the platform allows tenants to pay monthly, quarterly, or semi-annually, with furnished homes and all utilities included.
Spleet’s competitors include Fibre, the first company to offer such rental flexibility, and Muster.
The Economics of Flexible Rentals
A closer look at the financials shows why property tech startups like Spleet are increasingly leaning toward short-term rentals. For example, renting a three-bedroom apartment in Victoria Island, Lagos, at ₦3 million annually may cost an additional ₦1.5 million for modifications like partitions or installations. If the unit is rented out 40% of the time at ₦60,000 per day for short-lets, it could generate ₦8.9 million annually.
However, while property tech startups cater to renters, homeowners benefit too. They receive monthly rent payments instead of dealing with yearly tenants, which can lead to legal complications when tenants fail to renew their leases or pay on time. Under Nigerian rental laws, homeowners must provide six months’ notice before evicting tenants, and disputes over unpaid rent are common.
Spleet, unlike traditional rental arrangements, doesn’t require long-term contracts, thus avoiding the need for lengthy notice periods when eviction is necessary. However, this comes with its own challenge: Spleet cannot offer homeowners the upfront lump sums they would typically receive from yearly tenants.
According to Akintola Adesanmi, many homeowners in Lagos, especially those in their fifties, are accustomed to receiving rent annually and are reluctant to change this practice.
Supply Problem vs. Total Addressable Market (TAM)
Despite the clear advantages for renters and homeowners, property tech companies still face significant supply challenges. Many landlords are hesitant to list their properties on proptech platforms. Tobi Adama, CEO of AlphaCrux Limited, which assists proptech startups with property acquisition, notes that although these platforms offer tenants great deals, the offers to landlords aren’t as appealing. Many landlords prefer receiving ₦2.5 million upfront over ₦3.5 million in monthly installments, as they can invest that lump sum and beat inflation.
While proptech companies often cite long waiting lists as evidence of demand, scaling up remains difficult until they can address the supply issue. One investment banker in Lagos, Yomi, noted that when searching for an apartment on proptech websites, he found fewer options than expected. None of the most popular property tech platforms in Nigeria have more than 2,000 listings.
Akintola Adesanmi acknowledges the issue, stating that it’s not just a matter of supply, but of unlocking it.
Solving the Supply Problem
To tackle this challenge, some companies suggest offering homeowners yearly payments, though this comes at a high cost. Spleet prefers to grow slowly and avoid business models that could impact its balance sheet. Akintola explained that the focus is on understanding market complexities and gradually increasing supply on their platform.
Fibre, one of the original players in the property tech space, has been relatively quiet recently. However, Munachi Ogbonna, its director of operations, explained that the company’s absence in the news is due to efforts to strengthen backend operations. He also pointed out that in the past 24 months, the supply issue has shifted from quantity to quality, stressing the need to meet higher housing standards.
Economic Challenges and Market Shifts
One of the key challenges for proptech companies in Nigeria is the decline in the purchasing power of the middle class. While the middle class represented 38% of the population between 1999 and 2006, it now accounts for just 10%. As earning power decreases, many people are moving away from high-rent areas like Lagos Island to more affordable locations on the mainland.
This economic shift has made it harder for people to afford high rent, resulting in fewer tenants for expensive properties. This is why platforms like Spleet and Muster are increasingly looking to expand outside of Nigeria.
Expanding Beyond Nigeria
Recently, Spleet announced plans to expand to Ghana and Rwanda. The company tested its short-stay services in Ghana during the “Year of Return” event and found that the rental situation there was even more challenging than in Lagos, with one or two years’ rent often required upfront. However, the higher cost of living in places like Lekki in Lagos compared to similar areas in Ghana makes the expansion into these countries an attractive move for Spleet.
For proptech startups, the opportunity lies in providing better services and understanding the nuances of local real estate markets, offering both short- and long-term rental solutions.
The Bottom Line
While property tech startups offer renters the flexibility to avoid large upfront rent payments, their services can be quite costly. For example, a shared one-bedroom apartment on Spleet costs ₦260,000 per month, which, when factoring in additional fees, adds up to ₦3.2 million annually. However, this pricing includes furnished apartments with utilities covered and access to lifestyle services like EdenLife, which handles chores for tenants.
These startups cater to a niche market—primarily upwardly mobile millennials. However, with Nigeria’s GDP per capita hovering around $2,250, the affordability of these services remains a challenge for the majority of the population.
Despite this, Spleet recently announced hitting $1 million in lifetime revenue, proving that a smaller target market isn’t necessarily a dealbreaker. If proptech companies can unlock more supply in high-demand areas like Lekki, they could achieve greater success, even if it means finding middlemen to finance upfront rent payments for homeowners while passing on the costs to renters.
