Let’s be honest, real estate professionals are not exactly known to embrace change and technological advances. If anything, property developers are the ‘daring’ of the sector, but even they prefer to stick with the tried and tested.
Finally, in 2017, it seems that technology is being acknowledged by the industry as a way to make the property industry more efficient. But serious reservations as to the benefits of PropTech and concerns relating to its impact on the way things ‘have always been done’ remain in the hearts and minds of numerous real estate professionals.
The prevalence of PropTech firms is growing and the industry now seems more willing to integrate technology into their business operations than was previously the case. However, some of the more traditional structures and idiosyncrasies of the real estate industry are acting as a hurdle to progress in PropTech.
The possibilities of PropTech are substantial and there are a number of directions in which the sector could grow. The question remains whether the property industry as a whole will allow PropTech innovators to impact the way that the property industry works.
So, what is PropTech?
PropTech is the creation and implementation of digital solutions for the real estate industry. These solutions facilitate the provision and exchange of real estate information, a means of undertaking transactions and a method to facilitate effective management.
The PropTech sector has grown primarily off the back of the explosion of FinTech. The parallel between PropTech and FinTech, made it more acceptable to the more conservative of the real estate industry who want to retain the status quo and who fear for their stipends. Seeing its limited disruption in the financial industry gives these more conservative real estate professionals some comfort.
The “PropTech 3.0: the future of real estate” report by Oxford University divides PropTech into three sub-segments:
- Real Estate FinTech – those innovations that overlap with FinTech to facilitate trading of real estate such as lending technology, trading apps, connection of buyers and sellers and online estate agents.
- Shared Economy – platforms and concepts that facilitate the use of property assets. This is very much focused on the end user of the asset.
- Smart Real estate – this segment is concerned with the operation and management of property using technology.
For the purposes of this article and for the sake of simplicity, we will utilise these sub-segments as the basis of our discussion and will focus predominantly on the PropTech that will impact the residential sector.
Real Estate Fin Tech
Creating technological solutions to facilitate real estate trading has been around for some time. The real estate fin-tech sector is made up of a number of distinct groups.
1. Listings portals
Listings portals provide a way to list residential property for sale and for rent effectively connecting buyer and seller. Big players in this market are brands such as Rightmove (UK), Zillow (US), Hubble (UK), Trulia (US) Juwai (China), Immonet (Germany), ImmobilienScout (Germany) and there are many more across the world.
2. Data, Research and Information Providers
There are now a wide range of information providers digitising data on property types, prices, performance and far more. This data is utilised by others in the real estate profession in order to help them better analyse opportunities and improve performance. Key players in this group include businesses such as Costar, the original commercial property databank and Geophy which provides big data on buildings.
3. Online Estate Agents
Online estate agents have used the traditional estate agency model with one simple adjustment, they have got rid of their offices. The current model is generally a hybrid where local agents are available without the offices allowing the business to have lower overheads than the traditional estate agency model.
This market responds to current affordability issues where the market has become far more price sensitive with many, in the UK particularly, providing a fixed fee. Online estate agents include businesses such as Purplebricks, Yopa and Housesimple in the UK, Triple Mint in the US and PropTiger in India.
4. Equity Raising Platforms
Equity platforms allow investors to invest in property without the huge capital outlay involved in traditional home ownership. They invest a small amount, usually starting from about USD 5,000 and in return, they receive a share of the property and any returns that it makes from rental or other management income as well as the future sale of the property. Equity raising and crowd funding platforms include PeerStreet, Real Crowd, Roofstock and Brickvest.
5. Debt & Mortgage Platforms
Online lenders like Quicken Loans and Mint.com as well as Trussle, have online models that mean applying for mortgage finance has become more straightforward and automated saving customers time and effort.
With companies like Lending Club, Prosper, Lendy and LendInvest, the debt market is now open to crowd investment and so real estate investors have a new way to interact with real estate opportunities on short to mid-term time scales.
Shared economy is the use of technology to enable the sharing of real estate assets. Particularly well known in this field are businesses such as AirBnB, Homeaway and WeWork. Listings websites such as Rightmove and Zillow now make provisions for house shares on a long-term basis.
AirBnB is really the poster child of the shared economy sub-segment. It’s a hugely scalable business and its success is well documented. HVS estimate that hotels lose approximately USD 450m in revenue as a result of AirBnB bookings each year and interestingly, the price of AirBnB units is higher at USD 148.42 per unit than that of the average hotel, such being USD 119.11 per unit.
The sheer success of AirBnB shows the shift in culture and value of peer to peer platforms. While a threat to the hotel industry, AirBnB provides opportunities for residential property owners who previously had limited outlets to provide short term lets of their properties and has been instrumental in facilitating a change in the way that people seek short term accommodation.
The way that individuals and business use workspace has also been changed by shared economy opportunities. This is driven in part by the increasing transition from a traditional employment to self-employment societal model. Workspace can now be hired short term and in smaller volumes creating a new dynamic in the office real estate sector.
Smart Real Estate
Smart real estate has invaded our homes in recent years with the development of technology such as Hive, smart lighting and other eco features in particular. Amazons Alexa and Apples Home now provide additional controls for these integrated smart features.
These technologies enable us to better manage the use of our properties using digital technology through a combination of measuring how space is used and allowing remote control of features in homes and automation for key home functions.
Smart real estate isn’t limited to residential property, but can also be used to analyse and improve the efficiency and service output of public service buildings, to manage retail, warehouse and F & B spaces as well as other mixed-use asset classes.
ConTech: A Sector in Parallel
ConTech, technological solutions for the construction industry is an even newer and currently less developed area than PropTech. We are not looking at ConTech in this article, but it is definitely a sector to watch and which is worth a mention. ConTech initiatives may impact the way developers put together projects. During last year USD 2.2bn was spent by VC companies acquiring ConTech start-ups.
The Next Big Things in PropTech
So, what are the potential next big innovations set to impact the further digitisation of the property industry and its functions.
Block chain is probably the technology that would most likely cause a restructure of the real estate selling and purchase process, automating, to an extent the functions currently performed by a number of real estate professionals from surveyors to lawyers. In effect, it would centralise data getting rid of manual search and analysis practices as well as facilitating actual transactions. This would transform the industry reducing the cost and time taken to trade property assets.
Block chain is the system that is used by Bitcoin for the exchange of currency. It is a system where data is shared rather than being hosted on a single server and is centrally ‘owned’, the entire system must then accept any change therefore making it less likely to be hacked and with interactions occurring between one user and another. It’s a pretty complex concept and so, we will let you read from the experts at BlockGeeks some more about Block chain.
Virtual reality / augmented reality is already being embraced with virtual tours as well as other opportunities, but a change in the larger VR / AR market and the commercialisation of the industry making VR available to the masses will drastically expand its market and function in the future of real estate.
While there are some cost-efficient VR viewers such as google cardboard, the mass market has still not engaged fully with this technology. As the VR industry changes it may see major changes in the way that property is presented and information is exchanged.
Artificial intelligence or AI is likely to have a particular impact in the smart home sub-sector of PropTech in the coming years. As AI develops further, AI determined automations to facilitate a more efficient home environment in terms of security and sustainability in particular may be rolled out to the mass market allowing use in a residential setting.
The AI would take action to control the smart home on the basis of data collection as opposed to data inputted by the property manager or homeowner. Large businesses and warehouses have already started to adopt this technology to the extent that it is currently developed.
There are also questions about whether AI will be able to replace certain functions currently undertaken by real estate professionals, such as property valuations, use-classes of property and other strategy and analysis based functions. With the abundance of data available on property transactions, values and sales volumes it would not be unreasonable that from an algorithmic base AI could develop to draw conclusions in a similar manner to professionals.
One drawback here relates to the sales process and the possible unwillingness of customers to part with their personal data. Traditional estate agents currently discuss personal information with customers but it is not stored and categorised for any electronic analysis. Without this data, AI would be unable to provide an individual with suitable real estate solutions – data protection will be a key part of this argument.
Real estate professionals of the future may be those who teach real estate to AI and make adjustments based on external causative factors that the AI cannot process. Only time will tell!
The Future of PropTech
It is clear that the emergence of the PropTech industry is in its relative infancy, let’s call it a young teenager. It’s pushing the boundaries of what is acceptable to its ‘parents’ AKA the entrenched real estate professionals in a manner typical of any pubescent teenager. Some of its innovations are acceptable to the status quo of the household, others less so. As the PropTech industry grows up, we believe that, it will gain the power to seek its own path without reference to its so-called parents who will be left with no choice but to embrace what it becomes or walk away from it.
Some companies currently in the sector will thrive and grow while others will fail or be swallowed up by competitors. PropTech companies will be forced to keep pace or be left behind. What is cutting edge now may be considered basic functions in just a few years. There are undoubtedly some trends ahead that can’t even be identified at this stage of the game.
Real estate professionals need to stay up to date with the advances of PropTech to ensure that they can leverage the benefits it provides to support their business aims. PropTech provides infinite possibilities for the creation of a new type of property industry.