Future of Proptech: The Next Billion-dollar Opportunities
A new wave of Proptech opportunities is emerging to disrupt real estate and shake up the core underlying fundamentals on which the industry operates
Proptech - It's a term that didn't exist just a few years ago. And If this is the first time you've heard this term, it certainly won't be the last. Consider this – in 2008, a mere US$20 million were invested into proptech start-ups. Ten years later in 2018, this number reached a whopping US$12 billion. Proptech has already produced some highly valued start-ups like Wework, Airbnb, Compass & Opendoor - attracting both top-flight venture capitalists as well as talented entrepreneurs. Across the board, conversations revolving around Proptech are becoming more frequent.
A 20-year Overnight Success
Despite being the world's largest and most valuable asset class (more than $200 trillion of real estate globally), the property sector has always been a late adopter of technology. New technologies in real estate faced many headwinds as incumbents were slow to embrace them and entrepreneurs often struggled to efficiently distribute their solutions.
However, as we entered a super-cycle of innovation in the last decade, tech-enabled real estate companies experienced a rapid effervescence around them, necessitated by the consumers' increasing adoption of technology, and as an effect, proptech emerged as one of the biggest trends in Real Estate. It did take a while to get started but it continues to rapidly gain momentum. Broadly, there have been three waves of tech innovations in the consumer-focused(B2C) residential real estate space and this article revolves around that.
The first wave witnessed the emergence of numerous online listing portals like Zillow, REA, Propertyguru, 99acres and Magicbricks. Apart from listings, these players put out a sizable quantity of content and research on the Internet, making a home buyer's initial search and discovery a lot easier than before. Information was now truly democratized though it took nearly 15 years for the age-old newsprint classifieds to be disrupted by the Internet.
In the second wave of Proptech that followed, a new breed of tech-enabled brokerage players appeared on the radar. They believed in full-stack and transaction closure capabilities, and not just providing a virtual handshake between the buyer and seller (or their agents). These companies looked at proptech as an assisted sales process, wherein data, products, leads, and process automation drove the transaction, with an agent acting as a conduit to deliver the whole package
Now, a new third wave of Proptech opportunities is emerging to disrupt real estate and shake up the core underlying fundamentals on which the industry operates. Real estate is an expensive asset class, unaffordable to most, highly illiquid and operating mostly in a legally-mired playground. This third, and probably the most exciting phase of Proptech will witness startups that grow the green shoots to challenge these very fundamental principles. And this is where most believe the future lies. Let's browse through some of these opportunities.
Mortgages are complex, time-consuming and paper-intensive product lines which are ripe for tech intervention. There exists a huge opportunity in reducing a typical 30 to 45 days mortgage disbursal cycle to just a few hours; by bringing buyers, sellers, their respective agents, property valuers and lending institutions on to a common platform. There cannot be a better time to do this as many lenders across the world today are starting to accept digital authentication and consumer alternate data aggregation as core components of their backend credit decisioning systems.
There is another large fintech/proptech opportunity in "Unmortgaging' the mortgage itself. First-time buyers face immense difficulty in trying to get on the housing ladder as rising home prices typically outstrip wages. Co-ownership models that work as steppingstones between renting and owning have the potential to disrupt traditional mortgages. In these models, the occupier puts forth some equity to own a percentage of the house and pays "rent' on the remainder to the capital providers who buy out that remainder. The home buyer has the option to buy more of the house over time by adding more equity while tech facilitates automated valuations and brings transparency of ownership at every stage of the financial understanding.
To tokenize real estate is to fractionalize the ownership of real-world assets digitally on a blockchain. The potential benefits of Real Estate tokenization are enormous; the most significant one being bringing liquidity to this "illiquid' asset class. This would also enable higher participation by retail investors, who otherwise don't have enough capital to purchase an entire property and reap the benefits of such an investment. Then, of course, there is the promise of lower transactional costs related to blockchain efficiencies.
Real Estate Crowdfunding platforms have been around for a while now, catering to niche accredited investors. But this space could really take off in a big way when some proptech startups finally build public real estate exchanges where anyone can participate, making ownership transfers possible at the click of a button with a settlement occurring in the background, at a very minor per trade cost. This would enable the creation of a massive, liquid and highly transactional market of real estate interests, fundamentally changing how we perceive this industry.
Housing as a Service
The success of Airbnb in short term rentals and Wework in co-working has triggered a fresh wave of technology-based platforms which facilitate the use of real estate assets as a service. This is utilizing living and working spaces more efficiently, while also making them more connected and socially collaborative. Co-living is already making inroads, particularly among students, young professionals and first-time renters. There is a broader trend at play here. Consumers, worldwide, are moving away from asset ownership to an "on-demand' economy. It is a trend, already dominating the automobile, furniture, heavy equipment and many other industries, but can it become mainstream for family housing too?
The answer is not obvious, but one thing is certain; we are in the midst of some of the largest tech-led structural shifts in generations. Housing will continue to be transformed from a product into a service and large tech companies will bring the same efficiencies to real estate that eCommerce players like Amazon brought to shopping.
It's not far-fetched to imagine that tech companies would start owning and renting out a significant portion of the housing inventory in top residential zones worldwide. They would eliminate the friction of the physical interface and enable consumers to avail these services directly from them at the click of a button; whether it be securing a lease, buying a home online, selling it instantly, living in it, sharing space, and so on. The concept of housing as we know it may become extremely different from what we have known thus far.
How all of this unfurls is a function of time but what is certain is that we're at a tipping point.