PropTech is fast shaping and changing the property world beyond recognition. Just like most other industries, digital technology is transforming the way businesses work and interact with customers, colleagues and suppliers. Yet real estate has been slow to adapt. For example, research conducted in 2016 indicated that 88% of residential managers in the UK felt unprepared to meet the requirements of their tech-savvy customers.1
For many property sector businesses, the key to success is harnessing the PropTech innovations and solutions designed to deliver better customer experiences, improve internal processes and support the bottom line. However, anyone could be forgiven for being dazed and confused by the sheer number of PropTech products on the market and their various applications. The term ‘PropTech’ is as wide as the property industry itself, meaning different things to different people.
For property developers it might mean how they use data to understand where the best places to buy are, or maybe how they use the Internet of Things to build houses with appliances which integrate with smartphones and how people live.
For estate agents, it could be how they use listing portals like Rightmove or Zoopla (as virtually all of the market now does), or how they offer their customers a choice between a cheaper online/hybrid service, including virtual tours, versus a more traditional service.
We have Andrew Baum and his team at Oxford University to thank for planting a flag in the ground and defining the PropTech sector in his definitive report “PropTech 3.0: The Future of Real Estate”2, where PropTech is divided into three categories: Real Estate Fintech, Shared Economy and Smart Real Estate.
SMART REAL ESTATE > technology-based platforms that facilitate the operation and management of real estate assets. The platforms may simply provide information about building or urban centre performance, or they may directly facilitate or control building services. According to the report, smart buildings combine space with technology; from those that want to be more energy or resource efficient (think how Nest and Google Home have influenced millions of buildings across the UK and beyond) to purpose-designed new HQs such as Apple Inc’s Apple Park. Then there are the ‘high tech’ buildings such as data centres, specialised logistic distribution hubs for online retailers like Amazon, or even click & collect stores.
THE SHARED ECONOMY > technology-based platforms that facilitate the use of real estate assets. The assets can be land or buildings, including offices, shops, storage, housing and other property types. The platforms may simply provide information for prospective users and sellers of space, or they may more directly facilitate or effect rent or fee-based transactions. The players in this space are diverse; a blend of solutions designed for a new way of renting, hospitality and the changing world of work. Best known examples today include Airbnb, Airsorted or Kontor and then the shared working space environment such as WeWork or Workspace.
REAL ESTATE FINTECH > technology-based platforms that facilitate the trading of real estate asset ownership. The assets can be buildings, shares or funds, debt or equity; ownership can be freehold or leasehold. The platforms may simply provide information for prospective buyers and sellers, or they may more directly facilitate or effect transactions of asset ownership or leases with a (negative or positive) capital value. The area of real estate fintech is vast and PropTech innovations range from the well known brand names for residential sales and lettings such as Rightmove, Zoopla, Purplebricks and Vesta, the property marketplace for buying and selling residential investment properties with tenants in place, to crowd funding and equity raise platforms such as The House Crowd or Property Moose.
And if you needed further evidence about the relentless march of PropTech, the Royal Institute of Chartered Surveyor’s PropTech glossary3 now includes over 60 new tech terms featuring concepts such as the ‘Internet of Beings’ a human centric network based on collective insight and intelligence, or ‘Big Data’ data sets so large or complex that traditional data processing applications are inadequate.
So where is PropTech going and which sectors will be impacted the most?
Great advancement is expected across real estate fintech. Blockchain will have a dramatic effect on how data is shared, used and processed, something that is vital to the real estate sector. Blockchain, originally devised for Bitcoin, is commonly associated with cryptocurrencies; however, innovators have found other uses for Blockchain technology that apply directly to the real estate sector. That’s because information held on a Blockchain exists as a shared and continually reconciled database, meaning that the records it keeps are truly public and easily verifiable, with perfect provenance. No centralised version of this information exists for a hacker to corrupt. Hosted by millions of computers simultaneously, its data is accessible to anyone on the internet.
When you think of the traditional real estate process, it is burdened with paperwork, contracts, multiple parties and excessive amounts of back and forth communication over weeks and weeks. Blockchain has the power to disrupt the people and these legacy processes. Land registry data may be held on a Blockchain at some point in the future, as well as local authority searches relating to each property. This would allow for a far quicker, more secure way of conveyancing, especially if you also see ‘smart contracts’ (a digital protocol for facilitating the negotiation or performance of a contract) being used alongside this.
Conveyancing is another sector in real estate, which is crying out for digital transformation; the typical time it takes from exchange to completion is around 6-8 weeks. That’s far too long for today’s market, and it’s good to see that the Department for Communities & Local Government is challenging local authorities to turn around requests for information within 10 days. That’s a great start, but Blockchain could reduce this to nano seconds and not days.
In the world of buying and selling property, the pace has been set by early innovators who embraced PropTech to their advantage and these and future innovators will continue to shape estate agency. However, it’s the residential investment market that is most ripe for transformation.
This is due to a number of factors; first, a growing Private Rented Sector (PRS) worth £1.4 trillion, secondly large amounts of capital looking to invest into UK property (both domestic and international), and thirdly large real estate companies like Savills, CBRE, JLL and Knight Frank, who have yet to be challenged in the same way as the high street estate agents have been challenged by the likes of Purplebricks or Housesimple.com. This is a market begging to be transformed by PropTech especially when dealing with larger transactions (like a small apartment block or portfolio of houses) that too often lack transparency. The incumbents love to talk about ‘off market’ deals but the power of digital platforms is often to increase transparency, improve global buyer reach and improve the price discovery process, which is ultimately in the best interests of both seller and buyer.
What will drive transformation more than anything is continued investment – investment directly into PropTech innovations as well as investment in property enabled by new PropTech platforms. PropTech has attracted more than $6 billion in growth and venture funding since 20164, and that’s not counting the major investment that traditional service providers and data firms have made in modernising their activities and services.
For investors in property, PropTech can also play a key role. While many HNWIs have a significant portion of their wealth tied up in property, the PropTech to support this investment decision making process is only now just starting to appear. Compare this with the technology underpinning global marketplaces for shares, bonds or funds, which has been instrumental in the efficient functioning of these asset classes, it’s surprising that property is so far behind the curve. However, we’re now seeing a few PropTech startups addressing this challenge head on.
These include solutions that provide market data analytics, investment tools and calculators, or new online marketplaces including Vesta Property that provide an e-commerce platform dedicated to buying or selling buy to let properties. Easy to navigate, they can be interpreted effectively by wealth managers and clients alike who want a chunk of the real estate action. Before such innovations, it was speaking to various local estate agents, trawling government websites for market data and searching Rightmove for properties. This can be a drawn-out and inefficient customer experience, which is probably why up to 90% of landlords prefer to own investment properties in their local area.5
But that makes no sense when you have investment criteria. Investors don’t decide to buy shares in Tesco because they live in Welwyn Garden City and that’s where the HQ is; they buy shares because they believe in that company’s investment case. Property is no different. There’s no reason why, if you’re looking for yield, you can’t be based in London and buy a property in Yorkshire. The PropTech exists in the form of new online marketplaces and platforms to address these challenges (for instance by giving you local market data, remote property management or properties ready to buy with due diligence and tenants already in place).
From a corporate’s perspective, it is anticipated the large real estate players will continue to adapt and adopt the best technologies, but transformation won’t happen overnight. That’s partly because of corporate inertia, but also because property is a very personal sector built upon long term relationships and trust. Buying a property is likely to be the largest purchase someone makes, running into hundreds of thousands, and sometimes millions, of pounds. So it’s natural that replacing certain human interactions with technology needs to be done carefully and requires trust in that technology. Younger generations are usually more comfortable with this, as they’ve grown up with tech in most other parts of their lives.
When the majority of customers are using PropTech by default, then the real estate sector will have no choice but to adapt. And there’s no doubt that incorporating or designing PropTech solutions that add real value to the process for customers will win through.
This requires innovators to re-imagine the existing property processes from the perspective of the customer with fresh eyes to create a better service offering; a shift from ‘this is how we’ve always done it’ to ‘this is how we can imagine doing it’. Our own experience with Vesta Property shows that you can reinvent the buy-to-let investment process to include tenants in place and due diligence completed upfront. This means buyers receive rental income from day one, know what that rent is going to be, can see the rental history, don’t have to pay lettings agent finder’s fees, and as the tenant gets to stay in their home, this approach is also socially positive.
The next few years could see further shake ups as larger groups acquire PropTech firms for competitive advantage and the sector invests in the technology that it needs to survive. While it might not be possible for one firm to create solutions that satisfy the ‘end-to-end’ property process, there is huge scope for collaboration and consolidation. The smart money will be using the advantages of PropTech when exploring new property assets. ■
- Where landlords own properties. Page 27. The Profile of UK Private Landlords by the Council of Mortgage Lenders
- “PropTech 3.0: The Future of Real Estate” by Andrew Baum at Oxford University’s SAID Business School
- JLL Global Real Estate Transparency Index