If you talk to people in real estate about PropTech their eyes glaze over – they’re bored. “Everyone said there was going to be a PropTech revolution, it hasn’t happened”.
PropTech will change the way real estate markets operate. But change might look different to what everyone thinks.
Three years ago, I left a senior role at one of the world’s largest property agencies to set up a PropTech. Before going into PropTech I did the following:
- Residential Agency – I worked in small property agency in Australia in sales and then worked in rentals in London.
- Commercial Agency – I transitioned to commercial real estate. I started in telecom mast acquisition in the UK. I went on to run a Corporate Services division in Asia. Acquiring office and industrial space across the region.
- Residential Development – I set up an international sales business in Hong Kong. It became Asia’s largest international sales business selling projects from all over the world. I went on to set up a sourcing business in the UK to complement the Asian business in land, new homes and BTR.
FinTech is not a Good Measure
When people talk about PropTech they almost always compare it to FinTech. FinTech has changed financial services forever. Financial transactions are now faster, safer, and cheaper as a result of FinTech. Most people interact with some type of FinTech product daily. FinTech development and adoption has been stratospheric.
But FinTech development is not a good benchmark for PropTech. Particularly in the consumer market. Because of the frequency of transactions. Most people use financial services every day. Whereas the average person moves home 11.4 times in their life.
For PropTech to get mainstream acceptance it will need to develop products for high frequency users. As PropTech becomes part of their everyday use, it will filter down to less frequent users.
What has happened so far?
There has already been a small revolution. PropTech’s exist that are part of everyday use, but people don’t see them as PropTech’s. For example, most residential searches start in a portal rather than agent direct. Airbnb has changed how the travel accommodation industry operates. WeWork has changed the way office accommodation is used around the world.
But these are all on the boundaries of what is possible. So far there hasn’t been a product that changes “real estate”.
The striking thing about PropTech is there aren’t many people like me working in PropTech. There are lots of very clever people working in PropTech. But few with direct industry experience.
The problem with real estate is people think they understand it because they use it. But they understand what to do with it. But not how it is created or the reality of transacting it.
As a consequence many PropTech startups have built technology which:
- Answers a problem that doesn’t exist
- Answers part of a problem but does not appreciate how that problem relates to other pinch points. Because of this it is hard to integrate to existing workflows
- Not a broad enough use case – just because they had a problem with it doesn’t make it a common problem
There aren’t enough experienced real estate professionals working PropTech transferring knowledge.
The Problem with building a PropTech
I speak to other PropTech founders, their journeys have been similar to mine. Building a PropTech looks like this.
Finding a problem
First you need to find a problem. PropTech has to solve a problem or pinch point which exists in the market. There is no point streamlining or improving something that already works well. You need to be pretty passionate about the problem because you are going to spend a lot of time with it!
PropTech’s use money – in fact they burn cash. Lawyers, accountants, coders, UI/UX people and marketing all cost money. You’re not going to get everything right straight out of the gate. Especially if day one you know SWFA about tech (my starting point). You have to go through the pain and cost of mistakes. Mistakes don’t only cost money they cost time too.
It is virtually impossible to build a PropTech without capital. As a founder unless you are loaded you only have two options.
- Find a funding partner – you put in the time, and they put in the capital. But it’s unlikely you won’t need to put some cash in. If you’re not prepared to put in some hurt capital no one is going to back you.
- Get seed Funding – you have an idea and no money. You go and raise capital; you are going to get a salary but not much equity.
Building a “Product”
So you’ve got your problem and some cash to get going. Guess what, the easy things are now out of the way. The hard work begins.
You have to cover a lot of ground and fast. You need to work out how to build a technology product. You need to know how they work, how to build them and how to manage the process of building one. If you know nothing about tech you are going to need to get up to speed pretty quick. It’s hard to hire and keep good development people and if they think they’re not on to a winner they won’t stick around.
Once you have built your product, you’re at MVP (Minimum Viable Product). Boom, you need to find customers. For market making products the process is twofold. You need buyers and sellers.
You need to build and engage with an audience; you need to find the language they speak in. How to get in front of them. People don’t do business with people they trust. They do business with people they know. Guess what that means getting to know IRL or virtually a lot of people.
Resources are Finite
The other problem is resources are finite. Most PropTech’s are bootstrapping or some version of it. So you don’t have the resources to do everything at once.
What will a PropTech Revolution Look Like?
I don’t know. What I do know is it won’t be what everyone thinks it will be.
My best Guess
My best guess is that a commercial real estate revolution will look very different to a residential revolution.
Commercial Real Estate
Large real estate firms and corporates with large footprints are going to adopt PropTech applications. Legacy technology and a lack of know how will mean that integration will be clunky and expensive. But the opportunity to reduce headcount and save costs will be too big an incentive not to do it.
PropTech, automation and AI will mean these companies will be able to do more with less. The role of commercial real estate executive will be about how to use digital tools. These tools will eliminate administrative functions. And predictive analysis and AI will help with research and analysis.
The role of a commercial executive will be to review outputs and make decisions and recommendations based on the outputs. But the main consequence will be that nowhere near as many people will be required to do the work. Expanding market share is tough in the commercial space so most companies will simply do the same with lower headcounts.
There is far more opportunity for there to be truly game changing movement in the residential space. It seems to me there are two obvious things which will change.
New Build Housing
Most people believe that the housing crisis is specific to wherever they live. The reality is there are not many cities around the world which don’t have housing issues. People believe that more supply is the answer, it is but only to an extent. More supply delivered in the same way won’t reduce the cost of housing. Because new build property is about cost not price.
There are 5 basic functions which dictate the cost of new property, land prices, the cost of getting consent, building, sales and marketing and finance. The difference between the cost and sale price is the developer’s profit. Profit is a function of risk and the more capital at risk the higher the profit expectation.
Game changing PropTech will address the friction points in the housing market. By reducing cost, risk is reduced, and the price expectations of the developer will reduce.
The role of an Estate Agent
Residential real estate will always be a people business. But the future of a real estate agent will be intertwined heavily with tech. How far buyers go from the current reality to a full digital purchase will depend on how comfortable people ultimately get with a full digital purchase. Five years ago most people would not have expected that most consumers would now buy a car on the internet without a test drive. So anything is possible.
Things which are definitely going to change are:
- Predictive analytics and machine learning algorithms will help agents with pricing and marketing strategies.
- Augmented reality will allow agents to give clients virtual tours of properties, reducing the need for in-person viewings
- AI powered chatbots and virtual assistants will be able handle initial client inquiries and schedule viewing, freeing up agents to focus on more high-level tasks.
- AI like Jasper and ChatGPT will prepare marketing campaigns and campaign content
Estate agency will always be a people business. But it will be phygital – agents will need a physical and digital presence. Whoever gets the balance right will win. Estate agents who can adapt their model and pricing to allow for a new market reality will be able to quickly capture market share.
Those who stick to the traditional route are going to have to work very hard at audience creation and providing personalised service to stay relevant.
There needs to be a Catalyst
Finally, the final reason for a lack of a revolution might just be the lack of a catalyst. Change is driven by necessity not by big thinking. Big thinkers just happen to be there to capitalise. It may just be that we have stumbled on those two catalysts:
- Commercial real estate – WFH has changed corporate thinking about what is possible. And the coming recession and inflation spike means cost containment is a major driver.
- Residential real estate – the global market correction and housing supply crunch that follows will be a catalyst for change.
Check out our other articles about proptech, here.