Technology is reshaping our lives but the way we interact with the spaces in which we work, play and live, remains largely unchanged.
PropTech – which describes the wave of innovation occurring across the property industry including in data assembly, transacting and the design of buildings and cities – is finally starting to change that.
"The property industry is fundamentally inefficient because it's not yet digitised in every single aspect of that lifecycle: build, rent, buy, sell, move and manage,” says PropTech consultant James Dearsley.
While many sectors of the economy, such as retail and financial services, have been quickly reshaped by digital technology, the real nature of assets and relatively fewer (but larger) transactions has left property largely untouched until recently.
But between 2012 to 2017 real estate technology funding posted compound annual growth of 63 per cent to reach about $US12 billion, according to one estimate by Venture Scanner.
Dearsley, who set up PropTech research house unissu
, says there are at least 200 PropTech businesses now operating in Australia with the residential sector attracting significant investment while construction and retail are underrepresented.
"The Australian market is slightly behind the US. In America, they will invest based on scale of user base whereas in more conservative markets like Australia, they invest more on profitability – that holds it back a little bit."
Until recently, even relatively simple processes which lend themselves to digitisation, such as transferring property ownership, have been archaic processes requiring paper records and those involved to be physically present.
One-in-three consumers found the process stressful and one-in-five experienced a delay in settlement, according to a 2015 report
prepared by PricewaterhouseCoopers on behalf of e-conveyancing platform Property Exchange Australia (PEXA).
PEXA was built in response to a call by the Council of Australian Governments (COAG) to improve the settlement process.
The move to digital has not been without teething problems, with security recently bolstered in response to phishing attacks. However, the NSW government recently said these were isolated incidents and pale against the millions of dollars
in fraudulent transactions via paper dealings since 2013.
PEXA has ultimately reduced average settlement times from 40 days to 20 days, according to the Australian Banking Association.
The changing face of residential property
The residential property sector has attracted significant attention in Australia where it dominates the market. Housing accounted for more than two-thirds of all lending in 2017 with business lending the remainder, reversing the relative positions they held in 1990.
CoreLogic has previously estimated
that there are 2.6 million investor-owned dwellings across Australia worth approximately $1.37 trillion. BPAY Group-owned Lodge
is a recent entrant into the sector, aiming to help those self-managed landlords manage their investment properties with its platform.
A number of other PropTech businesses are also targeting consumers interacting with real estate agents.
Digital real estate agent, PurpleBricks, which charges customers a flat fee rather than a sales commission, uses technology in several ways to make the selling process more seamless such as booking valuations, showings, method of sale, or booking Airbnb when properties are vacant.
PurpleBricks raised significant capital and its share price quickly surged between early-2017 and mid-2018 while shares in traditional real estate agent incumbent Countrywide fell dramatically. Speaking in late-2018, Dearsley noted that a long sales cycle means PurpleBricks’ cost per acquisition is going to be very significant for a long period of time, suggesting profitability is a long way off.
"Investors are seeing that the traditional model is archaic, inefficient and frankly old. PurpleBricks is an example of a business that they predict will be successful in the future, but I'm not sure I've seen any proof that it's a sustainable success story for the general market."
That prediction proved prescient with PurpleBricks share price falling substantially in February 2019 after warning that its full-year revenues would be lower than expected and that some of its international businesses, such as Australia, were underperforming.
The era of big data
Innovation is not just being driven by PropTech start-ups and outsiders looking to disrupt the way the industry works.
A 2017 survey by KPMG of 330 real estate decision makers across 36 countries pinpointed data and data analytics as the biggest opportunity (44 per cent), followed by the Internet of things (16 per cent) and artificial intelligence (15 per cent).
Big data can allow real estate organisations to improve the utilisation of space, investment decisions and competitor analysis. Major business improvements include building performance and costs (29 per cent), decision-making (27 per cent), and better customer engagement (22 per cent).
For example, major shopping centre owners such as Westfield now use big data, such as anonymized bank transactions, to help decide where to open new retail sites and how to optimise store mix. In mid-2018, Westfield also spun off its PropTech arm OneMarket, which aims to give physical retail stores more customer data across a shared network so they can better compete with online players such as Amazon.
Collaboration is key for the future of PropTech, whether through greater use of shared data or by building more open architecture systems.
Dearsley points to the success of London-based Coyote, which spun its commercial real estate platform for investment managers, asset managers and managing agents out of M7 Real Estate in 2016. It partners with multiple other software providers to exploit the full power of property data.
"They realised the cross-pollination of data, ideas and innovation between them and others means they are most likely to survive, as are the people around them."
This article represents the views and opinions of the author and do not necessarily reflect the opinions of BPAY.
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