How Proptech is Influencing the Real Estate Market

Now, more than ever, technology is integrated into our everyday lives, and it’s only a matter of time
until every product, service, process, and business model has been affected. Digital innovation continues to change economies and markets, reinventing the way business is done regardless of industry. Some sectors, such as media and telecoms, were impacted a while ago, while others, such as real estate, are only now benefiting from the profound effects of digital transformation.

The real estate industry was at first slower than others to transition to digital. That has changed, however, with more businesses recognizing the value that technology can bring to their portfolios.¹

In a survey of more than 100 real estate industry leaders, two-thirds said that adopting new technologies was a strategic priority. Reasons for this include:²

• Capturing and using real-time data effectively
• Increasing efficiencies and reducing costs
• Accessing new revenue streams and increasing income
• Accessing new metrics, including environment, social, and governance (ESG) data
• Making better investment decisions

The COVID-19 pandemic has also played a part in disrupting the industry, with technologies being used to address the challenges of executing real estate transactions and managing properties remotely, for example.³

Digital platforms can provide property professionals with a competitive edge, but also improve and personalize the buying experience, by not only allowing users to interact with the market, but also enabling faster and easier transactions, impacting the growth of the property sector as a whole.⁴

What is proptech?

Proptech, or property technology, is designed to facilitate purchase, maintenance, management, and investment in real estate. It’s used in a range of functions including property listing and rental services, mortgage applications, marketplaces, virtual and augmented reality modelling, Internet of Things (IoT) home devices, and property management software.⁵

Though it is now an $18 billion industry, proptech has not grown nearly as quickly as financial technologies, commonly known as fintech, and the number of new companies being founded in this field is declining. Possible reasons for this include a disconnect between the issues being addressed by startups and those faced by property agents, fear of declining industry revenues should end-users gain too much control, difficulties aligning the business units within large property companies, and outdated latent infrastructure within these organizations.⁶

What is fintech?

Fintech refers to new technologies with the goal of improving and automating the delivery and use of financial services. ​​​Similar to proptech, fintech uses specialized software and algorithms to help companies, business owners, and consumers better manage their financial operations, processes, and lives.⁷

Real estate fintech solutions include digital-only mortgages that automate the necessary steps to speed up the process, and property investment providers that leverage the fractional-ownership model to reduce risk and fees for investors.⁸ Some companies are taking traditional models like rent-to-own and digitalizing them, while others are creating digital marketplaces where first-time investors and global asset managers alike can invest in homes.⁹

Growth in fintech has been explosive and shows no signs of slowing down, with the industry expected to grow at a compound aggregate growth rate of 23,41 percent from 2021 to reach a market value of $324 billion in 2026.¹⁰

Go beyond current FinTech disruption and prepare for future financial services priorities with this FinTech course offered by Harvard VPAL.

The role of proptech in the sharing economy

Like fintech, the advent of proptech presents a substantial area of opportunity for entrepreneurs and investors. As the world’s largest asset class, real estate offers tech-driven companies the chance to compete in a somewhat undeveloped space. This is due not only to the enormous size of the market, but also to the opportunities for innovation across investors, landowners, and owner occupiers.¹¹

As a result of radical changes in consumer behavior – prompted by demographic challenges, the economic climate, technological growth, and data usage, to name a few – companies such as Airbnb and Uber have overturned entire sectors in the space of a few years. Their success is largely due to their ability to offer customers something that previously didn’t exist, but also their knack for tapping into society’s burgeoning digital habits and smartphone connectivity.¹² Similarly, consumer needs, improved technology, shifting mindsets, and notably the COVID-19 pandemic have changed how real estate is designed and managed, both residentially and commercially.¹³

Proptech’s role in the sharing economy is disrupting the real estate industry. The sharing economy is a peer-to-peer mediated model, often involving online platforms, that facilitates access to shared goods and services, allowing people to turn idle assets into income. With the expansion of internet-based technologies, the sharing economy is emerging as a new and rapidly growing sector.¹⁴

Co-living startups are competing with traditional residential real estate investors through new models of space usage and living.¹⁵ These companies recognize that it’s significantly cheaper to convert and refurnish existing spaces for co-living than it is to build new living spaces. They’re also working to create trust between sharing tenants by addressing access control, individual room rates and billing cycles, flexibility around lease length, a network of other options, and the opportunity to rate housemates and landlords.¹⁶

The impact of proptech on real estate

Real estate professionals are using proptech to gather and interpret data, enabling more informed, data-based decisions. They’re also employing technology to automate and expedite a host of administrative processes, enabling them to focus more on client-facing work instead.¹⁷

As startups find their place in the real estate market, they’re reshaping the property purchase and management experience in numerous ways. Examples include:¹⁸

• Supporting leasing and administration
• Operating homes and buildings more efficiently and sustainably
• Cutting out middlemen in property purchasing
• Providing insights into tenants and how they use their space
• Collating and leveraging market data to evaluate investment, development, leasing, and purchase opportunities
• Managing underwriting – whereby financial institutions review a loan application to determine the degree of risk involved

Technology is mitigating many of the difficulties and uncertainties of buying a house. HomeLight is an example of a company using proptech to identify the agents in a market, match them with consumers, facilitate services like mortgage and escrow, and close the deal.¹⁹

As with other forms of investing, big data and artificial intelligence (AI) are having a significant impact on real estate market forecasting. Advanced algorithms can identify complex trends within data sets, taking into account factors such as historic price performance, annual supply additions, investment yields, gross domestic profit, and currency variations. These tools can support strategic decision-making, and will gradually become smarter over time.²⁰

 

Learn how to use quantitative analytical techniques and financial modeling to inform property investment decisions on the Real Estate Financial Analytics online short course from MIT SA+P.

 

The future of proptech: Embracing new opportunities

Proptech’s future depends on its ability to deliver customer-centric products that deliver more than just information. This will require skills and innovation from outside the industry coupled with knowledge and experience from those within.²¹

Just as technology has suffused other aspects of our lives, so too will it be with real estate. Advances in AI will no doubt play a part – AI is already being deployed to handle the complexities of underwriting, automating the process of examining property value, doing fraud checks, and evaluating the borrower’s credit history. Bellwether Enterprise used Clik.ai to help underwrite its $7.9 billion loan volume in 2019, for example.²²

The pandemic has accelerated the adoption of virtual reality (VR) home viewings and site visits, which present a convenient solution for property hunting moving forward.²³ Similarly, property appraisals could be conducted remotely, saving time, lowering costs, and reducing the number of strangers touring your home. VR has the potential to increase sales of unfinished or pre-construction units too, with prospective buyers able to view 3D representations of floor plan, layout, and finishes.²⁴ UK agency Aspire has also used VR to present various decorating styles to customers, allowing them to superimpose their tastes onto a prospective house.²⁵

Augmented reality has a role to play too, particularly at the formative level. Ireland-based PM Group uses XYZ Reality’s HoloSite software to project a 3D digital model onto construction sites. This enables supervisors to spot discrepancies at any stage of construction, reducing the likelihood of costly mistakes and changes.²⁶

IoT, which connects smart devices and sensors to collect a vast array of data, is already transforming building management, and will only continue to grow. Landlords can monitor their buildings on an increasingly granular level, enabling proactive maintenance instead of reacting to tenant complaints. Another example is VergeSense, which is using IoT sensors to monitor the movements of employees in office spaces in order to maximize their design and enforce social distancing.²⁷

Looking forward, more real estate and property management companies are expected to embrace proptech. As new technologies continue to affect and advance the property industry, real estate service providers can stay ahead of the curve by working to develop and implement effective strategies to meet the demands of today and tomorrow.

The University of Oxford’s Saïd Business School has designed a six-week programme that examines the impact of global trends and forces on commercial, residential, and sustainable real estate, both now and in the future. On the Oxford Future of Real Estate Programme, you’ll explore a framework of theory, practice, and innovation, gaining a range of perspectives that empower you to appraise development and investment opportunities.

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