Is proptech the future of real estate?

New Delhi | Updated: March 22, 2018 12:01 PM

An increasing number of real estate companies are realising the potential of technology to transform their business.

real estate, real estate sector, economy, indiaAdoption of technology across enterprise resource planning, project management and customer service are not management consulting buzzwords any more.

Over the last few years, funding for tech companies in the real estate and construction sector, commonly called proptech, has been on the rise. A number of trends have already emerged in the proptech space in 2018. One, real estate companies will have an increased focus on cost, hence necessitating the need for transparent end-to-end process management software. Two, there will be more consolidation in the proptech space as larger companies seek to acquire technology advantage. Three, the combination of drones, augmented reality (AR) and virtual reality (VR) will lead to a much better user experience for home buyers. Four, co-working and co-living firms will acquire a larger scale. And five, Big Data will start to have real world advantages for people who can use it effectively.

Increased focus on cost: The sector has seen significant regulatory changes in the last 12 months with the implementation of RERA and GST. These, combined with the government’s strong focus on affordable housing, Smart Cities and large industrial corridors (like the MIDC), make it imperative that technology becomes a key enabler for any participant who wishes to create scale and efficiency in the sector.

Adoption of technology across enterprise resource planning, project management and customer service are not management consulting buzzwords any more. They are essential for the survival and potential growth of any large-scale real estate business. Globally, companies are looking at 1-3% of project costs as the budget for software technologies to create cost and time efficiencies. Smarter companies like Godrej Properties, Vatika and Puravankara are already realising this and adopting technology to create scale across their entire platform.

More consolidation: In 2017, a number of large M&A deals, IPOs and funding rounds happened for a variety of companies in the proptech space. The prime examples are Redfin (IPO of $1.7 billion), ForRent (acquired by CoStar for $385 million) and recently Oracle’s big ticket purchase of Aconex, an Australian document management company for $1.2 billion. Oracle has been a serial acquirer, gobbling up a number of medium and small players as it builds up a significant presence in this space. Prior to Aconex, it had acquired Textura for $663 million.

In other more tangential examples of proptech, some game-changing companies like AirBnB ($447 million raised in 2017) and WeWork ($4.4 billion raised in 2017) have completely dis-intermediated the hospitality and office markets in the real estate space, and have brought in structural shifts that are changing the nature of those businesses. One could even argue that Amazon was the original proptech company that transformed the retail sector and altered shopping behaviours in a fundamental way.

By late 2016, Venture Scanner was tracking 1,258 real estate technology companies in 12 categories across 61 countries, with a total of $28 billion in funding. The MIT Real Estate Innovation Lab holds a database of over 1,600 real estate tech start-ups.

The trend in India also points to a significant change. With 77 deals worth $928 million being reported in the proptech space since 2013, India is a hotbed for investments, a recent survey noted. The real estate and construction industry, with an output of $150 billion per year, is the single largest non-farm employer in the country. The sector still operates in a fairly archaic and antiquated fashion, hence providing enormous scope for proptech companies to create solutions that provide transformational efficiencies.
Use of technology: In 2017, we saw an exponential increase in the use of drones, VR and AR technology. This will continue to get more traction for better sales. For prospective buyers, the use of AR can provide a better sense of scale and can help focus attention on the smallest of details. It will put significant pressure on builders to deliver the quality they promise.

A significant part of product strategy going forward for property portals and real estate developers will be the application of drones for photography. Companies, for instance, can use drones to capture 360-degree views from the building at various heights to give buyers a sense of the actual views from their apartments.

Co-working and co-living spaces: These have really taken off in India and are poised to disrupt the real estate market. They offer a cost-effective workspace model and also provide a great means to develop and grow your business network. This, combined with providing a “cool” and hip workplace environment for the millennial generation, is sure to make this model succeed.

In India, co-living could be considered as Version 2.0 of the much-derided PG accommodation. Though at present limited to metropolitan cities, we can be sure that this space is ripe for change. Multiple start-ups have come up to cater to this crowd who do not want the hassles of paying electricity bills, dealing with landlords or be subject to restrictions around night time curfews. The years ahead will see more of this playing out and the biggest impact will be on PG accommodations that are ubiquitous across the country and small one-bedroom rentals that have popped up to cater to this market need.

Big Data: The use of Big Data and Big Data Analytics in proptech is more prominent than VR and AR technology. Using Big Data, mapping, geolocation and machine learning to present prospective property investors and customers with the most relevant and attractive offerings is at present the fundamental way Big Data technologies are being used. This will be enhanced by the use of Big Data in procurement, logistics and customer service, helping the process be more efficient.
We will see this space grow as more and more companies realise the potential of technology to transform their business. With the real estate sector emerging from the cyclical lows of the past few years, I think that the winners in the next cycle will be the ones who leverage technology to create scale and efficiency.

By Sameer Nayar, CEO, BuildSupply; previously head of Real Estate Finance for Credit Suisse in Asia-Pacific

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