Innovation in real estate: Proptech - the rise of technology in the property market
20. February 2018 | Drooms Global
Whichever way you look at it, change is happening right here, right now and the role of technology will only increase as the sector matures. The only way forward is to embrace the inescapable restructuring or risk being left behind by the competition.
The term proptech has been thrown around a lot recently but in its simplest form can be understood as the harnessing of technology for advancement in the property sector. Its definition in terms of scope over time however will almost certainly change. The idea that technology can improve current services being offered is not at all new, but both the current buzz words used to describe that very process and the speed at which the market is moving most certainly is. Branded ‘PropTech 1.0’ by Oxford University and Said Business School in a 2017 study entitled PropTech 3.0: the future of real estate, the first proptech wave can be traced back to the 1980s with the emergence of computers and some of their ability to support spreadsheet software for the purposes of data formatting and analysis.
So why the sudden excitement now?
A new wave of innovation and investment
Spurred on by frustration, breakthroughs in technology, notably the emergence of the Internet of Things (IoT), 4G, Wi-Fi, open-source software, e-commerce and cloud computing has driven demand for tech savvy real estate professionals. When it comes to the real estate industry, fundraising is widespread but over the past four years, such activity has also become particularly noteworthy. According to SBInsights that released figures at the beginning of 2017, over the past five years, proptech companies have been setting new records on an annual basis both in terms of the number of deals and dollars raised. A total of close to $6.4 billion in funding for the period was obtained across 817 deals. In 2016 alone, industry related start-ups raised a whopping $2.6 billion across 235 deals. Both Homelink ($926M) and OpenDoor Labs ($210M) in particular sustained large amounts of funding. Growth is not constrained to one particular market or product type either.
The property sector: a late bloomer
Despite the huge amounts of funding, one cannot ignore the large and slow moving asset class. As an emerging and traditionally conservative sector, it is hardly known for the speed at which it has adopted technological change. Disruption has certainly come later than for other industries. Founder of ‘Airbnb for retail’ Ross Bailey described the industry as ‘inefficient and old fashioned’. Industry practices are notoriously inefficient and have a tendency to incur excessive transaction costs indorsed and protected by advisors. A major road block to timely uptake has been a lack of demand as many ask themselves why change is really necessary when what is comfortable and has always been done is profitable and still works. There is added fear, fueled by lack of knowledge on the topic, that technology will get rid of the middle man and replace real estate professionals all together. The automation of tedious tasks however, optimises processes, enhance workflows and boosts productivity rather than signifying job loss specifically, a view also shared by the National Association of Realtors.
Proptech can make the industry more efficient
Whichever way you look at it, change is happening right here, right now and the role of technology will only increase as the sector matures. The only way forward is to embrace the inescapable restructuring or risk being left behind by the competition. The likes of VTS, TenX and Habiteo are not likely to be going anywhere anytime soon and the emergence of crowdfunding for new construction and investment purposes, shared workplace, co-living and home swapping are becoming more and more popular and creating new jobs too.
Due to the increasing complexity of deal making in real estate transactions, greater regulatory and compliance requirements and broader volumes and types of documents involved, one of the biggest use cases for proptech is in real estate due diligence. There will be a greater need for real estate professionals to become more proficient in the use of modern technology and specialised software platforms such as virtual data rooms to improve and speed up processes. Using intelligent systems to automate due diligence can allow professionals to focus their efforts on more qualified and detailed tasks. When Drooms started developing the Findings Manager in conjunction with legal experts, we had precisely this goal in mind: helping due diligence experts with sorting large volumes of information, thereby supporting all parties involved in a transaction. Based on market feedback, the Findings Manager was created to help speed up the document review phase. Potential areas of interest are highlighted. The validation of the findings can be done from within the data room. Process optimisation and risk analysis are among the benefits possible as a result of Drooms having implemented machine learning and AI.
Opportunity is rampant in an industry so ripe for change. That being said it will be important not to misjudge the ability of the sector to oppose innovation. Proptech companies will also face challenges associated with greater competition and many will not weather the storm unless they serve a real need and contribute to a more efficient property market rather than exist for the sake of being disruptive.