How Technology is Changing the Housing Market

“PropTech” has arrived and is already disrupting the real estate industry. But what exactly is it?

An acronym made up from the words “property” and “technology” that is used to describe any technology for the real estate space, PropTech also goes by a few other aliases such as RealTech, ConTech and Real EsTech. But PropTech is, for now at least, the king of the hill.

The first accepted definition[1] of PropTech put forward by academic Professor Andrew Baum (author of the first academic report into PropTech and speaker at Cogress’s AltFi event in September 2018) and PropTech influencer James Dearsley was: “PropTech is one small part of the wider digital transformation of the property industry. It describes a movement driving a mentality change with the real estate industry and its consumers regarding technology-driven innovation in the data assembly, transaction, and design of buildings and cities”.

Its impact is now being felt throughout the real estate sector globally. Tech start-ups and tech-savvy SMEs are leading the way in the PropTech revolution through new innovations and the introduction of existing technologies to the various sub-sectors of the property market.

 

Revolutionising real estate

Property markets throughout the world operate in a very similar fashion albeit with a few regional nuances. The influx of innovations and technology solutions from PropTech players have opened the entire real estate business to a new spectrum of possibilities and choices, while adding another degree of competition to an already complex landscape.

However, while PropTech ultimately represents all the companies that are taking on the real estate industry to make it better, driven by an ever-changing digital landscape and new consumption patterns, it is still in its infancy. The scope for PropTech is certain to evolve as time goes; its potential to disrupt the sector on a massive scale is huge.

 

How can it be employed?

Though still in the shadow of its older relative FinTech (financial technology), PropTech is drawing notice because it is no longer a niche phenomenon.

Its influence can be felt in every aspect of the real estate business. PropTech innovations are now impacting changes on how properties are bought, sold, managed and rented. They have also made their mark on everything from the due diligence process right up to development and construction and finally payment and services.

PropTech is already transforming the way in which real estate services providers and property investors operate.

Its applications are manifest throughout the value chain where its reach includes software (property portals like Rightmove, OnTheMarket and Zoopla are considered to be PropTech software), hardware (smart thermostats and sensors, for example), materials (i.e. smart concrete and batteries for solar panels), and even manufacturing (see mobile construction platforms, 3D printing and offsite manufacturing).

Artificial Intelligence (AI) and automation also come under the PropTech umbrella and are helping to streamline many real estate processes, particularly in the logistics and supply chain arena. One example of this would be driverless vehicle technology.

Tech start-ups and tech-savvy SMEs are leading the way in the PropTech revolution...

Impact on the industry

It is plain that the property industry is well on the road to realising the opportunities that technology and innovation can bring.

As part of KPMG’s 2018 annual review[2] of the real estate industry’s journey into the digital age, its survey of 270 global real estate decision makers revealed, “property organisations are increasingly aware of its [PropTech’s] impact. A total of 97% of respondents thought that digital and technological innovation would impact their businesses” (2018).

Elsewhere, the vast majority of respondents had a positive view on technology and innovation; “73% see it as an opportunity and a further 25% see it as both an opportunity and a threat” (2018).

However, whilst the property professionals surveyed conveyed an increasing understanding of the benefits PropTech can bring, the report found that a continuing theme from the previous year’s survey was that few were actually putting their words into action.

The report states: “Real estate organisations need to be aware that the potential threats are only likely to materialise if they fail to adapt and grasp the opportunity [PropTech presents] (2018)”.

This can only bode well for the PropTech sector.

 

The value of PropTech

As well as industry operators beginning to realise the potential of PropTech and the benefits it can bring, investors in all shapes and size are too.

This can be evidenced by the investment capital being directed towards the PropTech industry, which demonstrates that the wider investment community is fully convinced of the transformative effect that PropTech is having, and is going to have, on the real estate industry.

To determine the impact of PropTech, real estate services provider Savills[3] analysed the last ten years’ deal information for over 2,600 corporate investment transactions involving companies of all sizes within the global property technology sector.

It discovered that “the US has been the biggest recipient of real estate tech investment in the last ten years, accounting for 57% by value of deals” (2018). Spain was next, with its PropTech firms accounting for 12.4% of total investment volumes. UK-based PropTech firms, which received 10.8% in total, were the third-largest recipients of investment.

According to Savills, “PropTech is set to determine how we purchase, sell, manage and occupy buildings long into the future” (2018).

These findings demonstrate the growth curve the PropTech industry has been on and further emphasise its increasing value to the real estate and investment industries as well as the global economy.

 

“Real estate organisations need to be aware that the potential threats are only likely to materialise if they fail to adapt and grasp the opportunity [PropTech presents] (2018)”.

 

From a UK perspective

In the UK, the rise of build-to-rent[4] means that property companies have had to up their games in order to keep their tenants happy, which means delivering seamless services amidst a very competitive market. PropTech enables these operators the capabilities to differentiate themselves from the competition and thrive through the elimination of costly and time-consuming paperwork and the introduction of easy-to-use services that are supported by technology.

Further disruption is on the way too: this summer, letting agents will be banned from charging fees to tenants[5]. This means they will have to look at how they can be more efficient and diversify their businesses. Technology will be a vital part of that.

Through PropTech, the UK property sector is delivering new ideas for property and its functions, which includes better buildings for people to work, live and play in and for businesses to thrive in. And more is on the way.

Already developers can offer potential buyers’ 3D walkthroughs of premises, which allows them to visualise the developments before they are built. Another example is intelligent open-plan working spaces – these areas can inform the users of their meeting schedules and best places to sit for their temperature requirements amongst many other things.

Large-scale changes are afoot, and the way in which people finance, buy and sell homes is evolving at a rapid rate. So too is the manner in which buildings are constructed, managed and employed. And PropTech is at the heart of it all – the real estate industry seems set for some serious transformation and prosperity in the years to come.

 

 

[1] 2018. Dion Carter, How we are Using PropTech to Lead the Market, Property Portfolio Management, 4 September 2018.

[2] 2018. KPMG Global PropTech Survey, The road to opportunity, KPMG, September 2018.

[3] 2018. Savills, Why PropTech is relevant to real estate investors, Savills, 16 October 2018.

[4] 2018. Gov.UK, Guidance on build to rent, Gov.UK, 13 September 2018.

[5] 2018. House of Commons Library, Tenant Fees Bill 2017-19: update on progress in Parliament, House of Commons Library, 28 December 2018.

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