What is PropTech?
Chantal Gakwaya
Founder and CEO of Globecore Group | On a Mission to Make Real Estate Investment Available For All
PropTech, real estate, and wealth go hand in hand. In fact, nearly one-quarter of Americans consider real estate the leading way to attain wealth in the economy,?according to?a survey from year-end 2022. Now that the real estate industry has begun to embrace technology, the sky is the limit.
PropTech is an emerging segment within the real estate sector representing the intersection of property and technology. There’s no single definition for PropTech, just as there are various standards. However, it’s safe to say that?PropTech?is designed to streamline and simplify the real estate market for all stakeholders through the integration of software and hardware solutions.
PropTech is behind the automation of many of the processes involved in real estate deals and investing. It’s also the system that has managed to break through the walls of tradition and begun to revolutionize the way that deals are done.
Historically, real estate is one of the few sectors of the economy that has held fast to tradition. Given the large sums of money involved, not to mention the multiple service providers it takes to close, real estate has held fast to its ways, understandably so.
However, PropTech offers a formula to usher in digitization without compromising the integrity of the deal – if data privacy and cybersecurity remain in check. When done right, PropTech introduces a new opportunity for?wealth building?in real estate and real estate investing as investors gain access to tech-fueled tools for better strategizing.
The market opportunity in PropTech is vast, so much so that estimates attach a?value of $86.5 billion?to this segment in less than a decade. This is up from its current value of over $18 billion. The opportunity is ripe for entrepreneurs, investors, and industry professionals alike who embrace change and take advantage of the features that technology has to offer.
Understanding PropTech
PropTech is widely considered to be the future of real estate. It represents innovation that is replacing many of the archaic processes typically associated with real estate with software-fueled automated services. Its reach extends from residential to commercial real estate, where various software tools are integrated into the various phases of a deal.
There are several components that comprise PropTech, not least of which involves the use of big data tools joining market participants and technology together in a streamlined way.
For example, where previously real estate deals may have relied heavily on Excel spreadsheets, the emergence of PropTech has automated many of these steps using cloud-based technologies, introducing greater efficiency into the process.
You’ve probably already seen evidence PropTech propping up in the real estate market, whether or not you recognized it as such. It appears across real estate channels, from listings to loans, businesses to consumers, investors to property managers, and beyond,?including:
These are some of the most common PropTech services that are changing the way that real estate deals are being done. The knowledge and skills that have always been present in the real estate industry are not fading away. But they are being enhanced with PropTech.
PropTech and Real Estate Investment
Financial services have witnessed what the impact of technology can do through?the rise of fintech. Now a similar trend has begun to unfold in real estate investing.
The rise of PropTech has disrupted every side of the real estate industry, not least of which have been software and investment strategies. Real estate deals run into the multi-millions of dollars, and manual processes are being replaced by automation for better communication, workflow, and data management for those who dare embrace it.
Real estate investors are now looking to cloud-based software solutions like big data and artificial intelligence (AI) to direct their capital more strategically and with greater efficiency. Both technologies are designed to perform the skills typically reserved for human beings in a faster and often more accurate way.
Indeed, a former reliance on intuition and old data patterns is being replaced by big data and AI. It’s easy to understand why. These techs can identify with greater clarity where the risks and opportunities in real estate investing reside, taking human error out of the equation.
The one-two punch of big data and AI-fueled strategies is helping real estate investors identify actionable ideas they can harness for their portfolios and spot trends before others do for a potential profit. Big data and AI tools help users take a macro approach to analysis on metrics ranging from Yelp reviews to granular trends unfolding in concentrated areas, like city blocks.
In addition, virtual reality is also making its way into the real estate industry, where properties are shown virtually, and sellers harness products like 3D video tours. VR is playing a role in the marketing of properties, including sales and rentals, while the technology is also supporting “architectural visualization” on properties that are still being constructed.
Another one of the hottest segments for investing in PropTech is software-as-a-service, or SaaS, a technology that is being harnessed by market participants such as property managers, construction general contractors, and companies that develop digital tools for the industry.
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A McKinsey & Company?report?splits the analytics equation into traditional and non-traditional features, saying that more than half (60%) of “predictive power” can derive from the latter. Non-traditional features collected by big data could include things like the distance to the closest four-star hotels or the number of coffee shops within a mile of the property, all of which could lead to better decision-making in?real estate investing?depending on the type of property sought.
Wealth Creation Through PropTech
Last year,?over $12 billion in investments?poured into the PropTech space across both debt and equity deals. It was the second-best performance for PropTech over a five-year period. This momentum occurred during an otherwise challenging market for real estate when interest rates began their aggressive ascent and uncertainty plagued the economy.
In addition, PropTech startups are attracting?hundreds of millions of dollars?from venture capitalists across the value chain, a sign that Silicon Valley is betting big on the future of this market.
One segment of the real estate industry that has seemingly gone unscathed is multi-family dwellings. The higher cost of home ownership due to rising rates has strengthened demand for rentals, which often occur in multi-family homes. In fact, the vacancy rates for these types of homes hover below their?20-year average of 5%.
PropTech companies are there to meet the demand with new offerings and innovation across the value chain. Among them, renters and landlords alike are gaining access to tech-powered leasing platforms that support processes like applications, vetting, insurance, rent management, and even the move itself. For their part, property owners are also harnessing tech-powered smart buildings for tasks like accepting payments, scheduling showings, and more.
Another nascent technology that has made its way into the real estate industry is the blockchain, a decentralized public ledger whose data is immutable. The industry’s maiden real estate deal financed in Bitcoin and completed on the blockchain has already come and gone.
The latest craze is fractional ownership, where properties are converted digitally into smaller units and tokenized, paving the way for investors to own a piece of real estate instead of the whole enchilada, thereby making a more affordable opportunity for some that would otherwise be left out. It also makes real estate a more liquid asset class as tokens can be bought and sold on the blockchain quickly.
Risks and Challenges of PropTech
With any emerging technology comes risks and challenges, and PropTech adoption is no different. As the fintech sector can attest to, technology innovation happens so fast that regulators often have a hard time keeping up. This can make it difficult for entrepreneurs to build while the regulatory landscape remains uncertain, as it could cause them to have to change things later on.
Real estate is big on data. Whether it’s bank account details or Social Security numbers, real estate deals are synonymous with handling massive amounts of private information. That’s why the industry has held onto its legacy systems for so long.
With the rise of automated systems in real estate, it’s imperative that data privacy is a No. 1 priority so that this sensitive information is protected. When it comes to investing in real estate, investors need to know that their data is guarded.
Data security is a challenge for startups and entrepreneurs who are innovating in the PropTech space to solve. And it’s up to industry participants to put the safeguards into practice.
But at the end of the day, at least in a tenant situation, it’s the property manager who will likely get blamed if there’s some type of security breach involved with property management.?Experts say?it comes down to communication so that all parties involved know what data is being collected exactly, what the risks are, and how it’s being used.
In addition, not all real estate firms have the systems or the talent in place to master the automated systems that PropTech brings to bear. The shift to digital has introduced challenges for firms that don’t have the staff in place or the skillsets required to use these systems. Therefore, it will likely require an investment on the part of these firms.
PropTech Example
Perhaps the most famous example of a PropTech firm is Airbnb. This company was an early mover on the PropTech scene and is responsible for opening the door to automation in real estate. Airbnb’s business model is short-term rentals that are facilitated through an online platform. Airbnb specializes in the booking side, which it relies on cloud-based management software to provide.
Conclusion
Real estate is the ultimate wealth builder. With the integration of PropTech, it has become even more attractive.
No matter what your role may be in the real estate industry, whether it’s as an agent, investor, property manager, or other service provider, chances are technology has influenced it in some way. Now is the perfect time to learn where and how you can integrate more of PropTech into your market and processes so that you can reap the same benefits that others have already begun experiencing.
As far as property technology has come, it’s still early days for PropTech, as evidenced by the major growth that has been projected. As PropTech continues to evolve, it is likely to play an even greater role in the creation of wealth from real estate. This translates to greater opportunities for investors and industry professionals alike operating in the PropTech landscape.
Owner at Showami, providing on Demand Showing Agents Nationwide
1 年Thanks for sharing your insights. There are so many good ideas and businesses being developed. I was in a meeting today with a CEO from an MLS. They value businesses that have longevity and integrate easily with other services.