How the Emerging Proptech Sector Gathered Momentum Between 2016 And 2020 Consumers are demanding more democratic access to buying, selling, leasing and investing in real estate, which is emerging as an asset class and financial product for the masses

The real estate industry in India is expected to contribute about 13 per cent of the GDP by 2025. By 2030, it is expected to be valued at $1 trillion. As a country, Indians have been culturally inclined to buy for their own residence as well as for investment opportunities, which has been a strong driving factor.

However, the pandemic highlighted problems in the way humans have lived and worked for decades. As a result, consumers today expect a lot more from their living and working spaces. It includes greater environmental sustainability during the construction phase. It also requires efficiency in the use of energy and water resources and better waste management in the post-construction space. Also, consumers are demanding more democratic access to buying, selling, leasing and investing in real estate, which is emerging as an asset class and financial product for the masses.

Over the last decade, the industry has undergone critical structural reforms, such as the 2016 demonetisation, the Real Estate (Regulations and Development) Act 2016, and the goods and services tax. These reforms have streamlined many processes and brought in much-needed transparency.

There is, therefore, potential to act on consumer opportunities quickly with technology.

The growth of proptech within real estate and construction

In the last few years, there has been a surge in new-age proptech companies focused on integrating technology in the Indian real estate and construction industry.

Take the rise of AI/ML, natural language processing (NLP) and big data, which has enabled the capture, translation and analyses of property ownership and lease information. It has facilitated the democratic access to data and empowered decision-making for individual buyers as well as financial institutions. The use of robotics in construction increases productivity, reduces waste, eliminates safety hazards and enhances quality for developers. The combined use of hardware and software to monitor and change how resources such as electricity and water are used in a building has led to changes in consumer behaviour. Integrations like these are driving construction and real estate in India to create living and working spaces of the future.

Currently, about 54 per cent of these technologies are focused on the residential space, 44 per cent on commercial spaces, and 2 per cent on retail spaces. The focus on the residential spaces continues to grow because of the pandemic. At the same time, workplaces are focused on enhancing comfort and sustainability to attract employees back. Also, roughly 60 per cent of all startups in this space are B2B. It underlines the focus on servicing large developers and property managers to reach a bigger share of customers.

Between 2009 and 2020, 225 proptech startups were funded with $2.4 billion, with $0.55 billion invested in 2020 alone. Within this period, investments in proptech have had a CAGR of 57 per cent, which is several notches above the overall real-estate industry's growth rate of 10 per cent, signalling prospects and focus areas.

• Startups focusing on green building technologies during and after construction are also growing. In India, 90 per cent of the existing building stock is not green, but it has increased 177 per cent in the past five years according to a CBRE report. Increasingly, commercial and residential building developers are pursuing the India Green Building Council green certification. Buyers and tenants are one step further, pushing developers to have international certifications like LEED and WELL accreditations.
• Startups providing fractional ownership of commercial and residential real estate are also on the rise. The commercial segment of the market i.e., malls, warehouses and office spaces has been growing in India; this segment had a 25 per cent market share in 2015 but grew to 62 per cent in 2020 and has consistently been giving investors double-digit returns. As a result, fractional ownership platforms are growing, with pre-leased Grade A office spaces taking the lead, followed by warehouses, hospitals, malls, etc.
• Startups that provide AI/ML technologies for real estate and construction received $76 million in funding, offering companies the ability for augmented customer engagement with chatbots, targeted ads, customised recommendations, predicting property values, home automation and property management.
• Startups operating with VR technology have attracted more than $17 million since 2015. Most listing platforms now offer a simulated tour with basic property details, and therefore 60 per cent of the buyers use digital platforms, with 37 per cent willing to close deals virtually after a single visit to the site.

Undoubtedly, the use of these technologies will improve the productivity and wellbeing of the people living and working in these spaces and have a positive impact on the climate and economy. Developers, property managers and consumers are providing and demanding a higher quality of experience respectively, driving the real estate and construction industry to a long- overdue transformation.