Residential Real Estate is at the Forefront of the PropTech Wave

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Residential Real Estate is at the Forefront of the PropTech Wave

Othmane Zrikem
August 23, 2019

Real estate is often portrayed as a technological dinosaur compared with other industries. It may be partly down to the jargon the sector uses. Even though modern buildings are mostly made of glass and steel, many still talk of bricks and mortar.

However, digital integration has a tangible impact on the property market. For instance, e-commerce has upended retail and raised demand for logistics Real Assets. Too often the industry feels like it is on the receiving end of change rather than being in the driving seat. But the image of everyone in the property industry being backwards-looking is somewhat unfair.

Due to its structural size, the Real Estate market cannot be compared to any other industry. It is by far the largest asset class in the world. Real estate is indeed a long-game business; it is structurally a fragmented and idiosyncratic business. That is why it has been challenging for technology-driven players to break in.

There have been many attempts to deploy B2B or B2B2C models, often imported from the advertising and IT industry. Most of the efforts have failed so far. The unit economics of the Real Estate market is yet to be mastered from a Data and Technology perspective.

However, the residential property market has been something of a trailblazer, with relevant online platforms such as Opendoor, Redfin, Zillow, Rightmove or Zoopla emerging in selected developed markets such as the US and the UK.

Tech companies have expanded their exploration of the residential real estate industry. They offer virtual open houses, digital closings, and other services. The big focus right now is to get as close as possible to the transaction itself through “instant buying”  or “one-click buying” business model. It is a B2B2C model in which companies buy homes, perform some light maintenance and put them back on the market.

The process of buying and selling houses is indeed smoother than ever. Thanks to historically low-interest rate as well as these increasingly diversified digital platforms.

Advances in technology have made preliminary steps more accessible for potential home buyers. They can look for homes on a variety of platforms, compare prices and features, even take virtual tours. Because these initial steps are now more automated, customers have higher standards through their entire decision-making process.

The emergence of build-to-rent and co-living housing have the potential to shake-up the entire residential market. The focus on services and amenities will see consumers demand more frictionless and transparent experiences. There is an emphasis over monetisation touchpoints such as home acquisition, online lease signing, digital platforms to manage repairs and maintenance incidents, etc.

The established industry players are actively trying to keep up. They are implementing several strategies to benefit from the expanding PropTechresidential technology ventures. Buy solutions to improve efficiency, develop solutions themselves in-house, or set up venture capital funds within the company that will co-invest in solutions.

A lot of the tech players coming to the residential property industry aim to eliminate the analogue frictions that slow down the transactional market: protracted negotiations, contingent offers, financing that falls apart before closing.

Some could argue that this very slowness contributes to real estate’s stability. There is less volatility, as it is hard to have a “flash crash” when it takes an average 120 days for a residential unit sale to clear escrow.

About the author
Othmane Zrikem
Senior Advisor & Venture Partner

Othmane Zrikem is a Moroccan-French Data Science & Digital technologist. He is the Chief Data Officer and a founding member of A/O, where he designs and executes innovative investment strategies combining data-driven methodologies and financial engineering.

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