Real estate investors and lenders have languished in the analog world longer than most other sectors, but in the last five to six years this is beginning to change.
Whether it’s the engagement of buyer and seller who do their best to arrive at a fair deal with imperfect information, or an asset manager overseeing a large portfolio of real estate assets – there’s likely to be a significant investment in time and people to obtain sufficient information to make informed decisions. Without the requisite information the loss of value in a large portfolio can be significant.
However, this paradigm has shifted significantly in recent times as technology has liberated the property industry and brought it into the light – changing the way the whole industry functions from the ground up.
The range of innovations that technology has served up to the industry has been nicely packaged in a simple buzzword – PropTech. It’s the term that you will hear in every investor pitch, forward-looking article and debate about real estate.
What does PropTech really mean?
Fundamentally it means the shifting of real estate business models and processes into the digital world. Digital formats and online platforms, mixed with exciting advancements in machine learning and artificial intelligence, are used to unlock the potential of advanced data analytics and increase efficiencies as well as improving investment decisions.
In the same way that technology has disrupted other industries, leaving behind businesses who stick with outdated models and processes, PropTech is pushing forward new players or propelling the growth of those businesses that embrace it.
What is the impact of PropTech?
PropTech requires businesses to think in a data-driven way, forcing a change of mindset. This means those processes and systems which are not optimized to deliver data will be under significant pressure. The technology brings about the ability to collect data at scale across the whole lifecycle, which is then fed into predictive machine learning models to create new insights and information that were previously unclear or unattainable.
This requires companies and individuals in real estate to change their mindset as non-traditional variables can be refined to improve the information on the investment or loan real estate asset changing the insight of assets at scale.
When this works well it means the democratization of data, and the democratization of data makes the market more efficient. In the consumer real estate market, the result is online real estate portals becoming data infused to provide a source of truth. As more data is made available, or derived from existing data, for example image recognition, it will continue to improve the ability to make informed decisions - whether underwriting a more accurate valuation or offering a more appropriate debt-for-asset swap.
How can PropTech be used to its full potential?
To get the best out the PropTech revolution, businesses need to integrate true data-driven decision making into the processes and culture of their organization. Across the real estate value chain there are opportunities to structure captured data to augment real estate assets, conduct effective analysis and derive insights that allow long-term strategic decisions.
So, by taking data seriously and adjusting based on what you’re seeing out there in the field – you can be much more agile and forward-thinking from a business perspective.
Advancements in machine learning and artificial intelligence have made this an increasingly powerful proposition and if done well can give the company a unique edge in the market. It does require an effective data strategy and in recent survey (KMPG Global PropTech Survey 2019 ) only 33% of the real estate investment and lending market have no data strategy at all but only 25% have a well establish data strategy.
The success of recommendation algorithms has been proven in social media, entertainment, and e-commerce – to name a few; and now these tactics are being applied to real estate, thereby unlocking tremendous value. For Asset Managers, this has meant the ability to segment their portfolios based on traditional variables as well as non-traditional variables, (e.g., the quality of points of interest and socio-economic information) with sophisticated recommendation systems which provides significant value for Asset Management of large portfolio.
PropTech startups are growing by 45% CAGR, and €500 M has been invested in PropTech startups in Europe alone since 2014, making Europe a driving force behind a tremendous level of innovation.
As we have seen with other industries, the global pandemic has only accelerated the adoption of technology. This momentum will only serve to pull traditional real estate kicking and screaming into the digital world.
Companies who embrace the change and reform their organization with the latest PropTech in mind will increase their wallet share in existing markets and find new revenue streams by opening new markets and getting ahead of the competition.