Entrepreneurship Zone: 05 June 2023 :: South African entrepreneurs tap into student housing demand

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Entrepreneurship Zone: 05 June 2023 ::  South African entrepreneurs tap
into student housing demand

 




 


·          

 

DigsConnect is an online student housing marketplace started in 2018 by
co-founders Alexandria Procter and Greg Ramsay-Keal in Cape Town, South
Africa. Jeanette Clark speaks to Procter about how they built the business.

In 2014, Alexandria Procter, while pursuing her bachelor of science degree,
was appointed to the University of Cape Town’s Student Representative
Council (SRC) as the head of day students. Little did she know that her life
was about to take a turn into entrepreneurship due to a problem she and many
of her peers were facing: student housing.

“In my first year, I had accommodation in one of the residences, which was
fine, but it was in my second year that I realised how hard it was to find a
safe and affordable place to stay. It was a nightmare,” she remembers.

As part of her responsibilities in the SRC, Procter was tasked with
manually connecting students to landlords offering suitable accommodation
near the campus. In November of that year, she built a straightforward
website over a weekend, aiming to automate the process. She had seemingly
found a solution to a major pain point, as the site quickly attracted
significant traffic.

Greg Ramsay-Keal, who was on the SRC with her, then suggested transforming
the site into a fully-fledged business.

In 2016, Procter gave up on the idea of her post-graduate degree to focus
on the fledgling venture. Several iterations later, DigsConnect was
officially registered and launched at the beginning of 2018.


The first business model


Initially, the platform was exclusive to registered UCT students, with
accounts only verifiable through university-issued email addresses. Although
the marketplace has evolved over time, Procter asserts that these safeguards
have always been a top priority. She emphasises that ensuring safety and
security are paramount in persuading prospective tenants and landlords to
register.

Revenue generation was not their primary concern during the early stages.
However, a turning point occurred when a landlord contacted the founders,
expressing a willingness to pay a fee to have his listing prominently
displayed in searches.

“We thought we had made it to the big leagues,” Procter laughs. “We opened
a Capitec account and received our first payment of R50 (US$2.5).”

The business model proved effective for some time, enabling the company to
expand into cities with large universities, such as Pretoria and
Johannesburg. The small team visited campuses, taking the time to listen to
students and understand their needs. Following these interactions, they
began contacting landlords to solicit listings.

By the close of 2018, DigsConnect had amassed more than 2,000 listings. To
thank its users, the company engaged in unique guerrilla marketing tactics
such as distributing R10,000 in R10 notes at a UCT campus square. The
following year, DigsConnect secured R12 million (approximately $608,000) in
seed funding from an investor. Everything was looking up.


A necessary change


Then, the world came to a standstill in 2020, with campuses becoming eerily
empty due to the Covid-19 pandemic and the consequent movement restrictions
imposed by the government.

Suddenly, the pay-for-preferential-placement model stopped working. With no
students booking accommodation, landlords stopped paying for their listings
to be highlighted.

“It was horrific, but looking back it was the best and hardest lesson I
have learned,” Procter says of the business surviving through the pandemic.
“It was like an MBA every week, for two years, with all the stress that
comes with that. The luxury of time and figuring it out was gone. You have
to get your value contribution and unit economics spot on, right away.”

The company opted to switch its revenue model, choosing to charge a
commission on the lease value instead. Once a landlord successfully secured
a tenant and a lease was signed, DigsConnect would earn a 3.5% commission on
the value of that lease. “This was a more sustainable model.”

As economies in other parts of the world began to reopen faster than South
Africa, DigsConnect sought international expansion, exploring opportunities
and potential partnerships. In 2022, Student.com invested an undisclosed
amount in DigsConnect and, as recently as February of this year, announced
an increased stake in the company. Student.com, founded in 2011 with its
headquarters in Dubai, is an international student accommodation
marketplace.

“The partnership gives us access to their global stock,” says Procter. “We
rely on them for international placements and they rely on us for South
African placements.”



DigsConnect co-founders Greg Ramsay-Keal (left) and Alexandria Procter


Not just students anymore


On DigsConnect’s website, it states, ‘Find shared housing for students,
expats, and young professionals worldwide.’ Rising rental costs in global
cities have made affordable accommodation a challenge for the younger
working demographic – a problem Procter believes DigsConnect can solve.

“The majority of our users are still students, but we do have young
professionals coming through,” she says. “We’ve added a section in our
application form where a prospective tenant can indicate in which category
they fall.”


Purpose-built student accommodation trend


Procter points out an interesting trend: the rising number of purpose-built
student accommodation – housing specifically built for students by private
developers – providers listed on the platform. “Property companies are
seeing the demand and realising how big an opportunity this is.”

Large South African property developers like Growthpoint have noted that
purpose-built student accommodation often outperform other real estate
segments due to fundamentals like high occupancy rates and steady rental
income.

“We’ve seen how companies are repurposing and refurbishing office
buildings, standing empty since Covid, into student accommodation,” says
Procter. “One such client filled up the rooms within a week on DigsConnect.”


An office in the UK and growth in Africa


Currently, Procter splits her time between an office in the UK and one in
South Africa.

A physical presence in Europe was necessary since the company started
including international listings, says Procter. There was a lot to learn
from a more sophisticated student accommodation market. “We are taking some
of those lessons back to our bigger landlords in South Africa.”

The company is also in very early stage talks in Nigeria, but for the
moment, the focus is on providing students in the rest of Africa with
accommodation options when they study abroad.



Alexandria Procter, CEO of DigsConnect

 

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