What is PropTech, and how does it work?
Between automation and uberisation, PropTech technology is both threatening and promising. However, many real estate startups have already been preparing to change the industry. PropTech is coming and will soon revolutionize the real estate industry. But what exactly is PropTech, and why has it caused such a stir? What does PropTech mean for real estate professionals? What are the issues at stake? You will find the answer in the article below.
What is PropTech?
Proptech is a small part of a wider digital transformation in the property industry. The technology takes into account both the technological changes and the changes in mentality within the real estate industry and the consumers attitudes, movements, and transactions regarding buildings and cities.
It is a somewhat vague concept but one that affects the broad spectrum of the real estate sector. Indeed, we are talking about the commercial side of the industry, the construction side, and even the buildings and cities of the future. It is no wonder that entrepreneurs, investors, and journalists are so keen to claim the technology for their properties. PropTech is a term for startups offering technologically innovative products or new business models for real estate markets. In short, it is understood to mean all companies that undertake to improve the real estate industry.
Currently, PropTech is emerging from several verticals:
- the real estate market as such (PropTech),
- smart cities and buildings,
- sharing economy,
- the housing industry (ConTech) and finance (FinTech).
- Both ConTech and FinTech have very close ties to the real estate industry.
Venture capital fund growth
Investment money allows a new service to be brought to market quickly and breaks down long-standing barriers. Fundraising by real estate startups is nothing new. But since 2014, the sector has experienced substantial growth and is officially supervised. One would have thought that global business leaders had realized that something was happening in the industry and that it was high time they could be the ones reaping the rewards – as evidenced by the rapidly growing investments over the past few years. It’s also worth noting that the first PropTech startup worth more than US$1 billion was founded in 2016, followed by three more in the same year.
How do startups work in the PropTech market?
Junicorn is a company worth more than $1 billion. Compass was the first to reach this milestone in the real estate industry. Homelink and SMS Assist quickly followed. And, of course, Opendoor. Interestingly, this trend is not just limited to the US and the Silicon Valley, as Homelink is a Chinese property portal. As such, PropTech is a truly global phenomenon. In addition, each of these four startups is fundamentally different in nature and scope. The first is a network of real estate agents, the second a portal, the third a property management tool, and the last has developed an algorithm for buying and selling houses online. Undeniably, the four PropTech Junicorns cover a broad spectrum. And with $6.4 billion raised over the past four years among more than 800 registered real estate startups, the newcomers target many traditional real estate professions.
Which real estate professionals will learn about PropTech?
At this point, it is pretty clear that the growth of PropTech is threatening all sectors of the real estate industry. Guarantors or SMS Assistants are getting into rental property management. Others like TenX, OpenDoor, or Purplebricks, on the other hand, are targeting property sales. VTS, on the other hand, lends itself to commercial real estate and Habiteo to property development. These are just a few examples that prove that no sector has been overlooked.
However, there is a clear difference between new and existing construction. Indeed, in existing real estate, many startups are lining up to eliminate and replace industry professionals. In new construction, on the other hand, startups mainly act as intermediaries or providers of high-tech tools for developers. In addition, recent trends are emerging in all sectors of the real estate industry:
- coworking covering the office space sector,
- co-living offers new alternatives for residential property,
- crowdfunding is transforming new construction and real estate investment.
In addition to the traditional real estate professions, many new jobs have emerged, such as drone pilots, virtual home specialists, and data aggregators. The above dynamics are prompting entrepreneurs and innovators to reflect on different aspects of the industry and create startups that respond to particular market needs.
What categories of startups do we distinguish?
Analyzing the PropTech sector is both a simple and complex task, given the many ways in which startups use technological innovation to impact the property industry. Without claiming to be exhaustive, let us mention for example, the use of artificial intelligence by Beacons from Smart Service Connect, smart home booking tools from Front Door, blockchain technology from Ubitquity, virtual reality from Matterport, augmented reality from Datrix, or data visualization created by Create.io. Others use connected objects, 3D printing, mobility technology, big data, etc.
In short, you can find thousands of ways in which startups are pushing the boundaries of innovation in the real estate industry. Most companies combine several fields of expertise. Take the Opendoor project as an example. The startup buys property online directly from homeowners at a price determined by a proprietary algorithm based on big data. After calling in a specialized team to renovate and upgrade the property, it then puts the property back on the market, using connected locks and cameras to enable self-guided tours for potential home buyers. Here, several ideas are presented, such as:
- mobility technology,
- large data sets,
- connected objects,
- digitalization, etc.
The reason startups have a competitive advantage is their ability to innovate at every stage of the process and to radically rethink existing systems. Moreover, it is indeed worth pointing out that PropTech startups are emerging with a new vision and a desire to reinvent the real estate sector.
Most startups, therefore, fall into one of two main categories:
- Startups offering support for real estate professionals, such as tools to enhance their services or productivity,
- Startups are proposing to replace real estate professionals.
How does PropTech affect real estate professionals?
First, the fact that someone has come up with a name for a new industry means that the trend is real and clearly defined. Not surprisingly, funds such as Fifth Wall Ventures, which has raised $212 million, have been set up to invest in PropTech. You can bet that sooner or later, a few promising startups will emerge and start fighting for a piece of the real estate pie.
A fine example of the dominance of classic sectors by startups is the music industry, which proved to have been tone-deaf to its competitors. Overconfidence and a lack of solutions to changes in music consumption led to the emergence of modern projects. Today Spotify, Deezer and YouTube control the distribution of music worldwide. The real estate sector also has its ‘pain points’, which PropTech is slowly supplementing.
Keep in mind that ‘Opendoor’ replaces real estate specialists for clients in Dallas, Phoenix and Las Vegas who want to sell their property quickly. In the UK, Alex Gosling, CEO of HouseSimple, indicated that online estate agents had taken over 5% of the market and it is estimated that they could reach 15 to 20% by 2020.
One might think that developers are more immune to this trend because they control the production and therefore cannot easily fall victim to the abandonment of intermediaries. Today, it is hard to imagine that a company can use big data sets to locate building plots, apply blockchain technology to streamline the buying process, print 3D models of houses and buildings, and use virtual reality to offer guided tours in order to sell these properties online. In 10 years, such a solution could become a reality. Technology is helping to keep the property industry interesting. Increasingly, newcomers are flooding the market, offering tools and solutions for property professionals that could gradually displace them.
Real estate professionals vs. PropTech
Keep up to date with industry news: read specialist websites regularly. The more information You have, the better.
- Pointing out the relationship between real estate professionals and new technologies is very simple. It starts with the realization that change is real, inevitable, and will happen with or without the participation of real estate professionals. However, there is no reason to be afraid of change – just accept it and continue to work with your current and future clients. Here are some helpful tips to help you accept the coming changes:
- Keep up to date with industry news: read specialist websites regularly. The better informed you are, the better you can anticipate changes in the market and meet customers’ needs wherever they are.
- Invest: invest in equipment and marketing tools to keep up to date with technology.
- Experiment: you have existing customers and are in the field every day. Test new tactics and find out which ones are most effective.
- Innovate: spend at least 2 hours every week thinking about how you can improve the way you work or the customer experience. This will help you stay competitive in the marketplace, no matter what happens with PropTech.
- Stay in touch with your customers: go one step further. Ask your customers for feedback. Would they recommend you to their friends? Why not? The best way to increase customer satisfaction is to meet their needs.
- Keep up to date with younger generations: keep an open mind and be aware of their changing consumption patterns. The younger generations are the customers of tomorrow.
Don’t forget: the most important thing is to keep up to date and avoid denial. Today, as a property specialist with a portfolio of clients, you can best know and anticipate their needs. Innovation and technology will not succeed if they do not meet your client’s needs. So if your clients are satisfied, technology and innovation are not needed. It is up to you to meet your customers’ needs. Technology is just a means to an end, and it is worth remembering that!