Developments in Property Technology

Below is a transcript of my presentation delivered at the 5th Business Membership Meeting of the PAREB-Pasay Makati Real Estate Board on July 28, 2020 via Zoom

Good morning to my PAREB- Pasay-Makati Real Estate Board (PMRB) family. Thank you once again for inviting me as a guest speaker to our 5th Business Membership Meeting. It’s been almost two years since I last had the privilege of speaking before our colleagues in PMRB and I should say that just like last time I feel very much honored and I am very very excited to have this opportunity again. 

In the next 20 minutes I will be talking about developments in Property Technology or PropTech. Some of you may already be familiar with it. For some of you, this may be the first time that you will hear about it. Whether it is your first or second time to hear about PropTech, one thing is for sure: as professionals in the Real Estate Industry, we should all know more about PropTech and how it is affecting and going to affect us and the industry.

 My talk will follow this outline. First, I will give you an overview of what PropTech is, some of its classifications, and a brief history of how it evolved in the past four decades. Second, I will focus on four recent technological developments – the ABCDs of Technology - that I think are revolutionizing the real estate industry today. Third, I will give you a survey of the PropTech that we currently have in the Philippines. Finally, I will close with my personal observations and my recommendations on how we, real estate professionals, can best respond to these developments.

 We can then spend 5 to 10 minutes after the talk to answer some of your questions, if you have any.

 I.                   What is PropTech?

So let’s get right to it. What is PropTech?

 To answer this, I’d like to show you a short video produced by TechinAsia in collaboration with JLL.

 https://www.youtube.com/watch?v=3qyBE0h46dA

No doubt, technology has been changing the world. And of course, as you saw on the video it has been changing the real estate industry as well. In recent years, we have seen how technology has been cutting out middlemen, how it has been driving innovation in property uses, and how it has been promoting the efficient use of space.

We call this technology- Property Technology or PropTech. PropTech refers to technologies that enable us to sell, buy, develop, or manage real estate assets in a more efficient way.

PropTech can be classified into three sectors: (1) Real Estate FinTech; (2) Shared Economy; and (3) Smart Real Estate.

Real Estate FinTech describes technology-based platforms that facilitate the trading of real estate. 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. There are many examples of this including Zillow (2006) in the US, RightMove (2000) in the UK, and Carousell formerly OLX (2006) in the Philippines. 

 The Shared Economy describes technology-based platforms that facilitate the use of real estate assets. The assets can be land or buildings. It can be offices, shops, storage, housing and other property types. Just like the Real Estate FinTech, 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 best examples would be Airbnb and WeWork. Locally, we have GreatWork, which offers co-working spaces in Quezon City.

 Smart Real Estate describes technology-based platforms that facilitate the operation and management of real estate assets. The assets can be a single property unit or an entire city. Thus, you may have heard of the terms “smart houses,” “smart buildings,” or “smart cities.” The platforms may simply provide information about building or urban centre performance, or they may directly facilitate or control building services. An example would be the technology used in the tallest residential building in the Philippines, Stratford, a project developed by Picar Development, Inc. Through the partnership with Cisco systems, Stratford is supposedly equipped with smart home technologies such “smartphone, child locator, smart work center, hands free shopping, smart cards, virtual concierge, smart kiosk and digital signage. The condo units are integrated to intelligent building systems management that control room temperature and lightings and security control system, electric stove, intercom, Wi-Fi, CCTV and fire alarms. Another example is the plan for the New Clark City, designed to be green and climate resilient.

 If we look at the history of PropTech, we can actually see three waves of innovation since the 1980’s, each of which reflecting a contemporaneous trend in the broader technological ecosystem.

 During the early days of PropTech, which spans between 1980 to 2000, we saw software companies emerge to address the real estate industry’s demand for better tools for functions such as underwriting, accounting, and analytics. Notably, the software prevalent at that time, unlike the ones we have today, did not communicate or integrate with each other.

 Then came the first wave of PropTech or PropTech 1.0 between 2001 to 2007, following the dot-com boom or the Internet era. At the start of this period, it was difficult to find real estate information online, and nearly impossible to purchase or rent a house online, but as more and more people began to trust online transactions, deals involving real estate also followed. It was during this time that online listing portals such as Rightmove in the UK, Zillow and Trulia in the US, and OLX in the Philippines emerged.

With remarkable advancements in storage, connectivity, and data processing came PropTech 2.0, which spans from 2008 to where we find ourselves today. Experts say, and I certainly agree, that for a large part, the FinTech industry – in particular, online payment systems, crowdfunding equity and debt platforms and online exchanges – provided the foundation for this revolution.

Companies in the PropTech 2.0 era sought to improve the user experience of renting, buying, selling, and building physical spaces. Many of these companies leverage on the shared economy like Airbnb (2008) and WeWork (2010). In the Philippines, it was during this time that many of the existing online real estate platforms such as Zipmatch (2012), Lamudi (2013), Property24 (2013), Hoppler (2014), and Dot Property Philippines (2015) were founded. 

Some say that we are now entering the third wave of innovation in Property Technology or PropTech 3.0 with recent technological innovations.

What exactly are these innovations?

This brings me to the second part of my presentation.

 II.                 Recent Developments in Tech

There are many exciting technological innovations happening around us today. I would like to focus on the ABCDs of tech. A stands for Artificial Intelligence and Machine Learning; B stands for Blockchain; C for Cloud Computing; and D for Big Data.

Artificial Intelligence and Machine Learning

Artificial Intelligence, or AI for short, refers to smart technological tools that are programmed to learn from their environment to improve processes and decision-making.

Right now, many property search sites rely on simple preferences like location and size to display properties for sale; increasingly, AI is now being used to allow these sites to recommend properties based on preferences, personality traits, and values.

Chatbots on these search sites may be able to answer consumer questions quickly and easily, and they might even accompany buyers to showings. In fact, there are companies working on a technology that would allow a real estate agent to conduct showings via a tablet or with a chatbot, allowing one agent to do more showings in a day. 

AI is also being used to predict pricing trends more accurately. It would look at historical trends in the market for an area, and take into account area crime, schools, transportation, and marketplace activity. 

Blockchain and Smart Contracts

Blockchain is basically a record-keeping technology combined with cryptography. At its most basic level, blockchain is literally just a chain of “blocks” or digital information stored in “chain” or a public database.

Meanwhile, a smart contract is a computer code that can be built into the blockchain to facilitate, verify, or negotiate a contract agreement. Smart contracts operate under a set of conditions that users agree to. When those conditions are met, the terms of the agreement are automatically carried out.

For illustration purposes, say I am renting to you my condo unit in Makati using a smart contract. My condo unit is of course integrated with state-of-the-art technologies. My door is automated and has a code. I agree to give you the door code to the unit as soon as you pay me your security deposit. Both of us would send our portion of the deal to the smart contract, which would hold onto and automatically exchange my door code for your security deposit on the date of the rental. If I fail to supply the door code by the rental date, the smart contract refunds your security deposit. This eliminates the fees that typically accompany using a notary, a broker, or an agent.

Blockchain-based smart contracts offer a new alternative to record land titles. Moving all documentation into a decentralized and secure ledger, such as a blockchain, could be a radically more efficient way to manage land ownership, help avoid disputes, and ensure that records are not manipulated or lost. We are far from adopting this technology, but countries such as the UK, Sweden, and Ukraine are leading the way by testing blockchain applications to record national transactions.

Another advantage of using blockchain is eliminating high cost of verification of property details. It is notoriously difficult and expensive for real estate companies to verify all important property details before lease or purchase. To be sure, listing websites such as Zillow help address this by increasing market transparency with their large database of sites, but this can also be addressed more efficiently by using blockchain. By making it possible to store all building data such as repair records or floor plans in a digital, central and secure place, blockchain can make it much easier for investors to do their due diligence and verify all property details. It can even be possible to track the journey of construction materials across the building lifecycle, from the factory until demolition and recycling of parts, making it easier to track the origin, quality, and age of each part.

Blockchain can also address one of the main disadvantages of real estate as an asset, which is its low liquidity. While Real Estate Investment Trusts and Special Purpose Vehicles somehow address this liquidity issue, they do not offer the same granularity and ease of sale of other assets, as they lock up investors ? funds for a considerable length of time. Using blockchain, however, we can create digital representations of real estate, divide it in small fractions, and make the fractions digitally available as tokens (i.e. tokenization). This creates a new way of investing that allows owners to sell their stakes in the open market without the property needing to be sold. Thus, tokenization does not only address the low liquidity issue of real estate but it also helps with another disadvantage of real estate which is high barriers of investments for smaller participants. Real estate tokens enable fractional ownership of a building or land, increasing market participation and unlocking financing methods for developers.

Cloud or Cloud Computing

Cloud, or cloud computing, is the storage of data via remote servers but which can easily be accessed through the internet. This is increasingly becoming necessary because information is so huge and complex that saving it on your computer is just not enough or too expensive and could potentially cause security nightmares.

Cloud computing technology can give real estate companies and agents efficient storage for thousands of files, including photos, documents, and other business content. Over the years, in our career as real estate professionals we will continue to accumulate information, and it will get harder to organize and store this information as time goes by. By using cloud, however, we will have a remote database where we can store such data. And not only is this storage extremely accessible (you can use your tablet, laptop, or even your phone), but it’s also highly secure since higher protective measures are continually being incorporated in the technology.

Big Data

Websites like Zillow and Redfin (2006) have disrupted the real estate industry using the power of big data. These companies are able to compile and sometimes collect data on buying and selling trends in a specific area, traffic, demographic information, consumer survey results, and more, and then analyze and collate that data to offer insights on pricing, home-value trends, and potential value in certain neighborhoods.

For owners, property managers, and real estate professionals, big data is about gathering realtime and historical information about all kinds of properties and building systems and translating that into proactive maintenance. In some cases, it may even alert a property manager to an equipment failure before it happens, allowing them to perform maintenance or source a replacement with minimal downtime. That keeps tenants and property managers happy.

There are many other PropTechs such as Virtual and Augmented Reality, 5G, and Drones.

 III.               PropTech in the Philippines

Many of these technologies are in fact already adopted in the Philippines. We see AI being employed on FB pages of real estate businesses and in many of our local online listings portals such as Carousell (formerly OLX), Hoppler, Zipmatch, dotproperty, Property24, and Lamudi. We see blockchain and smart contracts being introduced by tech startups such as Qwikwire’s Aqwire, a blockchain-based real estate listing platform for commercial and residential properties. The use of Cloud Computing services as Amazon Web Services and Big Data technologies such as NoSQL, Hive, and Presto becoming more and more prevalent.

In the coming years, we will see more smart online listing portals and more mobile-friendly websites and apps. We will also see a more extensive use of drone photography as well as Augmented Reality and Virtual Reality that allows homebuyers and investors to see the properties even before they even walk through the door. The need for these technologies is highlighted by the ongoing pandemic where mobility is limited.

Another interesting recent development we have had is the entry of real estate crowdfunding companies in the Philippines. Just last year, after the SEC Rules on Crowdfunding was finally approved, tech startup Signet launched a platform called Flint, which allows Signet to solicit funds from the public to purchase real estate assets in exchange for profit.

Using the internet, Real Estate crowdfunding platforms connect investors to property investments. Real estate crowdfunding is similar to equity investing since an investor can buy into a property and become a shareholder. Crowdfunding offers companies access to capital that they might never be able to raise.

Real estate tokenization, which is in fact already happening in the US, Netherlands, and Singapore, is another trend that we would likely see in the coming years. Last year, C Estates announced tokenizing two residential properties in Makati last year and it appears that it has tokenized several other properties since. Another company IATokens also announced a similar plan.

As I pointed out earlier, real estate tokenization is made possible by blockchain technology. By representing the ownership of real estate assets digitally on a blockchain, the same can be fractionalized and traded in a secondary market dedicated for such real estate tokens. While cryptocurrencies and real estate tokens both use blockchain technology, they are different in the sense that real estate tokens are actually securities. Unlike cryptocurrencies like Bitcoin or Ethereum which can be used independent of its platform, for those who are familiar with cryptocurrencies, security tokens cannot exist outside its platform.

IV.              Final Thoughts

What we have discussed are very exciting developments in PropTech. These are just the beginning of the wave of improvements and changes to come. As real estate professionals, we must learn to ride with it or end up getting crushed.