- In 2015, investments in real estate tech startups reached a record of $1.7B.
- We explain the new technologies and the impact they are having on the real estate market; blockchain, cloud computing, Social Mediaand the Internet of Things, drone usage, geospatial, build information modelling, and other solutions from FinTech firms are likely to re-shape the property industry
- Traditional real estate players need to be agile and flexible in including these technological innovations in their strategy to keep pace with their new competitors and maintain their edge
Dynamics in the real estate market – introduction
Forecasting is an inexact science at the best of times, but it is clear that a number of dynamics have great potential to fundamentally change the real estate industry over the coming decades, including real estate usage, location, development, design, valuation, buying and selling processes and financing.
In 2015, real estate startups raised a record high of $1.7B. The US lead the field with $950m; the next largest investments were made in India, China and Europe, of which nearly three quarters was in the UK.
The technological disruption that is happening in the real estate industry is likely to transform many real estate professions. In general, real estate technology includes all dedicated software used by different practitioners, including brokers, investors, real estate-focused lenders, property owners and managers, as well as buyers. The category includes online real estate rental and buying sites. According to recent research carried out by Oxford University, the potential for artificial intelligence algorithms to replace brokers’, brokerage clerks’ and telemarketers’ jobs is estimated to be between 97% and 99%.
What are the new technologies?
Critical issues in buying and selling property include a lack of transparency during and after the transaction, a huge amount of paperwork, potential fraud, and mistakes in public records, to name just a few. In this regard, blockchain, a distributed database that maintains a continuously growing list of secured transaction data, offers property investors, brokers and homebuyers a new way to get access to the information they need in a time efficient manner. It allows practitioners who do not know each other to trust a shared record of events. This shared record (or ledger) is distributed to all participants in a network who use their computers to validate transactions and thus remove the need for a trusted third party to intermediate. In a blockchain-based world of transactions, there is almost no need for financial intermediates such us banks, insurers, brokers, notaries and even paper currency. The blockchain takes this part of the transaction over from the professionals.
The key advantages of blockchain for the real estate industry include:
- total transparency, reducing asymmetric information pre and during the property transaction
- reduced risk of fraud, by having an accurate record which identifies the current owner and provides a proof that he or she is the real owner, making it easier, safer and faster to buy and sell the property
- speeding up the overall process associated with buying or selling a property, making it possible to program smart contracts. Using smart contracts based on blockchain, assets exchange could follow specific instructions encoded as part of the transaction, allowing it to be executed automatically once agreed criteria have been met. All the computers of the participants in the network validate every transaction.
Cloud computing, mobile, social media and Internet of Things (IoT)
As stated in a recent Deloitte report, technological progress is automating brokerage and leasing tasks, bringing down barriers between potential tenants and property owners. Cloud computing developments combined with mobile, social media and IoT are resulting in cost-savings and real-time availability of information that are enabling multiple leasing tasks online. This is particularly beneficial for small companies, which are usually more affected by entry barriers. For instance, real estate listing websites provide several services ranging from basic aggregation of leasable space, to offering an online marketplace for property owners and prospective tenants. Among others, firms like Hubble and 42Floors provide office space listings in the United Kingdom and the US respectively.
In addition to this, technology enhancements can further disrupt the traditional brokerage model by providing more and more information to tenants. For example, geospatial technologies aid and automate several activities with respect to site analysis, sales, and marketing. These new technologies also provide additional information that can allow more informed location-related decision making. In contrast to physical maps, online demography maps and reports for a particular area allow owners to understand the purchasing behaviour and socioeconomic status of the end consumers of their existing and potential tenants (eLocations is a great example of this service).
Building information modelling (BIM)
Building information modelling (BIM) is a process involving the generation and management of digital representations of the physical and functional characteristics of places. In regards to property, modelling an asset in digital form allows those who interact with the building to optimise their decisions, resulting in a greater whole life value for the asset. BIM brings together all the building information in one place. It makes it possible for anyone to access that information for any purpose, e.g. to integrate different aspects of the design more effectively. In this way, the risk of mistakes is reduced and abortive costs minimised. BIM data can also be used to show the entire building lifecycle, from cradle to grave, from inception and design to demolition and materials reuse. Spaces, systems and products can be shown in relative scale to each other and, in turn, relative to the entire project.
Drone usage is becoming very common among surveyors, helping them to facilitate the survey. A recent RICS report stated the key advantages of drones include:
- better quality images
- better time management
- reduced survey time
- other environmentally friendly matters, such us reduced fuel consumption thanks to the drones being equipped with rechargeable batteries and not generating fumes
FinTech and Robo-Advisory
The financial side of the real estate industry is changing and the so-called “FinTech companies’’ are leading the charge. These companies use algorithms to cut out the middle man and therefore lower costs, making financial services far more efficient and consumer friendly. According to Bloomberg, Robo-Advisers, which use computer programs to provide investment advice online, typically charge less than half the fees of traditional brokerages. Among other asset classes, real estate investment can be managed by Robo-Advisers. Consulting group A.T. Kearney predicts that Robo-Advisory will become a $2.2 trillion market by 2020.
While there is no certainty about the extent of disruption that will be caused by each of these technologies and how the industry will react in the short and medium term, we firmly believe that real estate companies will have to be agile and flexible in embracing technological innovations to keep pace with their new competitors and maintain their edge.
Disintermediation in brokerage and leasing may significantly transform the age-old brokerage business. And retailers’ and manufacturers’ rush to meet ever-increasing consumer demand for speed through last-mile delivery, will re-shape the lines between retail and industrial properties.
Property developers will have to be smart about their location strategy as property location will be more important than ever. They will need to be very focused on designing flexible, physical spaces that can be customised to tenants and ultimately consumer needs. Traditional real estate players need to make a choice between proactive responses to the evolving business environment or risk being disarmed by new entrants, losing their competitive advantage as a result.
About Avamore Capital:
Avamore Capital is a special situations lender that provides loans to property traders, property developers, property investors, and other property entrepreneurs. Loan sizes are between £0.5m and £5m with larger loans possible in conjunction with its partners. Avamore Capital provides a flexible approach, quick feedback and very fast drawdown, subject to due diligence.
For further information please visit www.avamorecapital.com or contact Rocco Versace at email@example.com