What is PropTech?

PropTech is the common terminology used to describe the new era of technology innovation which is set to disrupt the traditional real estate industry. Currently in the beginning of this new trend but there is much scope for this universe to evolve as time goes by especially as the convergence of technologies including cloud and digital transformation is fuelling the interest and drive to PropTech.

 

PropTech Verticals

Given the breadth and depth of the real estate industry, PropTech touches a number of different areas making it challenging to identify the different verticals. However, Andrew Baum of the University of Oxford suggested four main verticals of the PropTech world:

Smart Real Estate: Vertical focused on the operation and management of real estate assets. These companies typically focus on providing information about buildings or facilitating the control of these buildings

Shared Economy: Vertical focused on the use of real estate assets focusing on the occupier markets. These companies typically provide information to users and act as a facilitator for a broad range of transactions

Real Estate FinTech: Vertical focused on trading of real estate asset ownership. These companies focus on providing information for buyers and sellers or directly performing the operations

ConTech: Vertical focused on built and construction work. These companies attempt to serve engineers and architects in the design and construction of buildings.

PropTech Opportunities

Given the scope of the real estate industry, it is unsurprising that the opportunities are vast and wide. The numbers are unsurprisingly huge. Savills World Research team reported that global real estate values totalled $228tn in 2018. 

Every resistance in the system represents an opportunity and a viable solution. The following are six key opportunities for investors in the near future:

1. Securitisation of Assets: While there is investor appetite for residential and commercial property, the opaque industry can get access to high-quality equity or debt investments a challenge. 

Through the advent of vehicles like Initial Property Public Offerings or tokenisation, investors can get exposure to top-quality assets diversified across regions and neighbourhoods. 

It is already happening in traditional loans via companies like Crosslend. 

Given the compelling nature of such a product, start-ups able to replicate similar offerings in real estate stand to gain.

2. Construction Planning: Construction is a trillion-dollar market, but planning remains complicated and inaccurate. The consequences of being late or making critical mistakes tally up into the millions, yet PlanRadar estimates 90% of projects are not completed on time. Start-ups that can help improve this figure, likely via tools like AI and IoT, are expected to add significant value.

3. Location: Understanding and predicting property prices is a difficult task, mainly due to the numerous factors that go into determining the attractiveness of an area. Currently, both buyers and agents tend to use intuition in making important decisions. However, with the availability of data and AI tools, it is possible to get accurate estimates to aid in this decision making.

4. iBuyers: For those frustrated with the steps of selling a home, iBuyers are companies that simplify the process by buying the house from the seller with upfront cash. The iBuyer then takes the responsibility of the marketing, administration, and execution of the sale. 

For users, this is a hassle-free way to sell, and for iBuyers, utilising AI and scaling relationships with vendors provides an attractive arbitrage opportunity. 

The key European player in the space is Nested who has raised £165m in VC, but it is solely focussed on the UK, leaving room for other players in the region.

5.Smart Contracts: The engine behind blockchain, smart contracts represent a compelling opportunity in real estate to cut out the “middle man” in an industry with many misaligned interests. 

Smart contracts reduce if not eliminate the need for trust in property transactions as they don’t execute if the established agreements are not met. Players like Propy and SMARTRealty are playing in this space in the US, but Europe remains ripe for disruption.

6.Tenant Experience: While the industry has been quick to improve the commercial office building experience, the same cannot be said about the tenant experience. This condition has remained mostly unchanged over the decades. 

Services that enhance the lives of tenants, such as providing easy access to the building or connecting with local services is a potential base of value creation. It can be a way of differentiation for real estate operators.

PropTech Investment

PropTech investment is growing aggressively, with the investment in the industry growing from $186m in 2011 to $20bn in 2018. It represents a compound annual growth in PropTech investment of 95% and is indicative of global investor appetite for these kinds of investments.

Investors see the importance of technology in driving the structural change in the industry. In some case, this change is driven by necessity. High-density cities are becoming untenable and are now benefiting from co-living and co-working spaces. The prominence of which is complemented by the current generation’s desire for connectivity and inclusion.

Carbon emission management and the associated economic and societal costs now feature in everyday conversation. Housing demand is far outweighing supply in large and growing cities, and construction techniques haven’t evolved in decades.

In other cases, there is a further opportunity in enhancing market liquidity and tidying up administrative functions, which are huge drags on time and human capital. PropTech is attempting to tidy these problems up.

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