The long awaited inflection point for PropTech
For decades, everyone has waited for real estate businesses to adopt more technology - Is the moment finally here?
Real estate has been on of the slowest adopters of technology amongst any large industry. Consider this -
A total rent of $2 Trillion was paid by tenants across the world, and $3 Trillion worth of real estate was sold in 2019. Collectively, real estate businesses spent only $8 Billion on software and technology to enable these rentals and sales. It is a dismal 0.16% of the total revenues of the industry were spent on software. It is one of the lowest for any developed industry. Automotive industry spends about 0.3%, pharmaceutical companies spend nearly 0.5%, retail companies (many of whom have completely reinvented themselves as e-commerce companies) spend about 0.6%, and so on.
Real estate, has clearly been a laggard in this regard, and until now, it didn’t look like it was going to change.
Why has the industry been slow to adopt technology?
I have 3 possible explanations for this, although the real answer maybe something else altogether!
Fundamentally offline: It’s one of those rare industries where the product doesn’t go to the customer, but the customer has to go to the product! This makes it a fundamentally offline industry, and will always be difficult to move completely online. With that as a primer, it’s easy to imagine why the industry would be super slow to move, and hence, adopting technology doesn’t fundamentally change anything
High transaction size, low frequency: While retail, pharma and a multitude of other industries work on high frequency but low value transactions, real estate is the opposite. Given high transaction size, people want to build a relationship with the seller before transacting, and not simply look at something on their laptop and purchase instantly
Long customer lifecycles: From the time a customer discovers a property, to transacting on the same, all the way till they exit (either in rental or purchase transaction), it takes multiple years. Plus, there are so many regulatory and administrative tasks during this lifecycle which are super hard to automate or digitize
A market that is starting to move
No prizes for guessing Covid-19 is changing the world, and along with it, the real estate industry.
To be clear, it is not the pandemic in itself, but the changed expectation of customers, which is making real estate business re-evaluate their relationship with technology.
Real estate businesses are scrambling to address new requirements laid out by customers - Buyers and renters alike. While previously, people were willing to go offline, meet an agent/representative and see multiple properties together, customers are wary of meeting relative strangers in enclosed spaces, and are demanding to see properties online. As large companies prepare their ‘back to office’ strategies, door access systems with fingerprints were ubiquitous earlier but customers are not comfortable ‘touching’ surfaces which have constant contact with 100s of others. These are as few examples of changes we can definitely expect in the industry going forward.
Some obvious opportunities for PropTech companies
It might finally be the moment PropTech companies have been waiting for - A potential opportunity to supercharge growth when selling to real estate businesses. A lot of great companies can get built now, but let me highlight a few obvious ones -
Digital twins/3D walk throughs: Companies like Matterport have made great in-roads in giving a great digital experience to buyers and renters, making the physical visit to the real estate a lot less important
Digital customer journey: Seeing properties, making bookings, signing contracts, and everything beyond - Customers have been doing this offline for decades now. This is a great chance for companies to digitize the entire customer journey and give a seamless customer experience. At TheHouseMonk, we are very much focussing on this opportunity
IoT: While many IoT companies have focussed on door access systems with manual touch points (Ex. finger print based door access systems), there is a large opportunity to move from this onto facial recognition based or bluetooth based access systems
We are at an inflection point with technology adoption by the real estate industry. Real estate businesses as well as PropTech companies need to work together over the next few years to ensure we move the industry forward in the right way.