The real estate industry has never been well known as a fast-moving industry. However, the real estate industry is now playing catch up with technology investment.
Whilst the property industry has been left wanting, FinTech has exploded, providing innovative solutions for just about every facet of the financial services industry; effectively turning the industry on its head. It’s left industry incumbents scrambling to play catch up. So why hasn’t the real estate industry has not made the same investments into technology?
Why has the property industry not invested in technology?
Well, if you think about it the answer is quite simple. The real estate industry is very different to many other industries there is actually very little competition in both the customer service and production sides of the industry.
From a real estate agency perspective, there are only a handful of large companies (JLL, CBRE, Savills and Knight Frank) which account for most transactions in the commercial real estate market. Likewise, in the domestic market, the situation is very similar. Whilst there may be more ‘brands’ which exist most are actually owned by a very small number of large agents that simply operate multiple shopfronts.
Likewise, the situation is very similar in the development market. There are a very small number of developers who account for a massive proportion of the new housing which is developed.
Why haven’t property agents embraced new technology?
For many people, it almost seems a no-brainer that large property agents with a big client base would embrace new technology. I suspect those looking to existing industry incumbents to drive change may well be waiting for some time. It would be a little bit like turkeys voting for Christmas! The reality is true innovation will come from outside the mainstream property industry, for the following reasons:
- Misaligned application – most property professionals see the value of technology and its application to real estate. However, the vast majority see this technology being used to enhance their own product offering to clients and customers, rather than putting the technology in the hands of end users.
- Significantly impairing existing revenue streams – the creation of PropTech applications, will ultimately impact existing revenue streams and therefore there is little incentive for the vast majority of companies in the industry to accelerate this change.
- Internal alignment – even if large agencies seek to implement new technology within their businesses, it will likely be an uphill battle because of the way fee revenue is shared and allocated: teams and business units often operate in silos. There is little incentive for different divisions to share clients, client information or transactions. Attempting to get these business units to adopt new technology ‘for the greater good’ will be nigh on impossible.
- Latent Infrastructure – the main ‘CRM’ used by most major firms is MS Excel and most firms work from out of date technology which has either been implemented from off the shelf solutions or was custom built for the business but is now out of date. Few of these systems integrate with each other and ultimately data is connected between systems from inaccurate human interaction. The reality is most companies do not and are not willing to invest the capital required to implement true tech solutions.
- Technical know-how – even if businesses do want to implement leading edge technology, the reality is that the technical know how often does not exist within the businesses.
Many people are now starting to ask the question of whether the future for PropTech is a flash in the pan or whether it will truly revolutionise the real estate industry? In a recent survey undertaken by the National Institute of Estate Agents (NAEA) its members reported ‘PropTech fatigue’ after being constantly approached by startups pitching their product. The main concern raised by its members was that many PropTechs solved problems that did not exist and that companies only had a superficial understanding of the issues faced by property agents. In the UK today there are currently more than 700 companies that claim to be creating technology solutions for property agents.
In order for PropTech to truly live up to its growth potential, the industry will need to dramatically change its focus. It will have to create products for consumers, however, these products will need to provide more than just information. In order to create products that truly ‘move the dial’, they will need to call on skills and expertise from more than tech people alone. They will require expertise from within the property industry from people who understand the process of building, funding and promoting real estate assets.
Within the residential market, the scope of what could be achieved could make uncomfortable reading for some, but could also fundamentally change consumer confidence and also the cost to deliver these products. It is not too difficult to imagine true innovation in the following areas:
- Investors – products which aggregate investors to create true buying power and economies of scale. This could reduce developer market access risk and also cost, creating a sharing model for the savings which could be attractive.
- Landowners – products which give landowners far greater insight into the development potential of land, together with the costs and risk involved in developing the land. This could create a more efficient market for land owners to trade their asset, bringing more development land to the market.
- Owner Occupiers – products which aggregate buyers together to purchase land and appoint a development manager to deliver homes. The result could be to remove ‘the developer’ from the equation and therefore the need for development profit.
Whatever the future for PropTech holds it will be interesting to see this space change over time. I have no doubt that PropTech will continue to evolve and change. However, to genuinely ‘move the dial’ PropTech will need to offer genuine innovation for consumers.
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