New Tech that's Remodeling Real Estate
“CREATIVE DESTRUCTION” REFERS TO THE “PROCESS OF INDUSTRIAL MUTATION THAT INCESSANTLY REVOLUTIONIZES THE ECONOMIC STRUCTURE … INCESSANTLY DESTROYING THE OLD ONE, INCESSANTLY CREATING A NEW ONE.” THE EXPRESSION IS MOST READILY IDENTIFIED WITH JOSEPH SCHUMPETER (1883-1950) WHO POPULARIZED IT THROUGH HIS BOOK “CAPITALISM, SOCIALISM AND DEMOCRACY”
“Creative destruction” is what we are witnessing in today's real estate world.
A massive influx of private firms combined with decreased processing costs and new technologies eroded the monopolies held by established companies.
The transformation of traditional business models (“disruption”) by innovative startups has proved challenging to the real estate value chain.
HOW TECHNOLOGY HAS REVOLUTIONIZED THE TRADITIONAL MARKET
The real estate industry has turned a digital corner to meet the expectations of private individuals and professionals.
This impacts the entire value chain, from funding, to home purchases to subletting.
DIGITAL TECHNOLOGY HAS TRANSFORMED HABITS, SUCH AS CONSUMING, SELLING, RENTING OR BUYING (THROUGH AUGMENTED REALITY, ONLINE VIEWINGS, BIDDING ETC.), WHICH TRIGGERED NEW OPPORTUNITIES.
AUTONOMY/SELF-SUFFICIENCY: REFLECTED IN SITES SUCH AS SKYSCANNER.COM OR BOOKING.COM
SKILLS & EXPERTISE: AS SEEN IN BIG DATA'S KNOWLEDGE SHARING
PROMPTNESS & RESPONSIVENESS: SUCH AS CHATBOTS AND PRICE-COMPARISON WEBSITES
TRANSPARENCY: ACCESSIBILITY OF INFORMATION
Thanks to innovative, well-funded, multipurpose platforms, customers are increasingly realizing the value that tech firms bring to traditional estate agencies.
Furthermore, they are more open to paying fees as long as they get quality service in return. Conversely, due to the mediocre reputation of traditional agencies, customers are reluctant to pay for standard services.
Tech platforms are gaining ground, as seen in the purchasing process.
Nowadays, 90% of house-hunting is done online (nearly 750,000 monthly online viewings at Athome.lu). It is one of the first activities that quickly turned digital. Potential customers are armed with so much online information that fewer and fewer of them are calling estate agencies.
Customers have come to expect extensive online information about properties for sale. Ads featuring HD pictures (including layout, floor plans, etc.), videos (360°/Matterport or drone footage of existing constructions) and immersive viewing of off-plan properites (Cognityk Luxembourg) receive more requests for viewing and more bids, resulting in quicker sales.
With chatbots, AI gets the discussion started and advises the potential buyer.
Scheduling property viewings using computer algorithms can be efficiently outsourced (Flatsy). In general, customers can hardly tell the difference between estate agencies nowadays, making space for new players to appear:
RATING AGENCIES LIKE IMMODVISOR MARKETPLACES LIKE HOMEXPERTS IN LUXEMBOURG
REAL-ESTATE AGENCY CERTIFICATION (FOR EXAMPLE, THE BROKER CERTIFICATE IN LUXEMBOURG)
Low-cost agencies have now appeared (Proprioo, singlerate fee at €990), as well as online estate agencies with no physical office (efficity). Some of these platforms even try to push the estate agent out of the deal (Noagent in Luxembourg).
A number of new websites have emerged to help buyers find the best mortgage online via a credit simulator. The aim is to compare offers in order to get the best one (as with air tickets, for example), essentially overhauling the brokerage business (Meilleurtaux).
If a financial guarantee is needed, it can be provided online either to potential tenants (theguarantors) or to the owner/ landlord (Reposit). Due diligence and documentation can be outsourced (lethq). MYNOTARY OPERATES A SMART DATA ROOM FOR DOCUMENT-SHARING AND EXCHANGING MESSAGES BETWEEN PARTIES OF A REAL ESTATE TRANSACTION (REAL ESTATE AGENCY, NOTARY, BANK, INSURANCE COMPANY, INSPECTION/ASSESSMENT FIRM).
FROM FIRST CONTACT TO A PRELIMINARY SALE AGREEMENT, IT COLLECTS VARIOUS PIECES OF DOCUMENTATION (SURVEYS, BIRTH CERTIFICATES, NEIGHBORHOOD PLANS, ETC.). IT CAN ALSO SCHEDULE APPOINTMENTS, ASK/ANSWER QUESTIONS AND PREPARE DRAFT AGREEMENTS FOR FURTHER DISCUSSION.
MYNOTARY DIGITIZES A LINK IN THE VALUE CHAIN. THE CUSTOMER CAN FOLLOW UP HIS FILE AND TALK WITH THE NOTARY OR REAL ESTATE AGENT VIA A LIVE CHAT.
Legal support is also available online for contract drafting and signatures (Lebonbail), inventory on tablet (Homepad).
Data rooms are used to facilitate multiparty dialogue, including the notary (Mynotary).
A thorough knowledge of the property is a strength and extensive information can be collected from quality platforms (in particular the technical ones from BIM), complementary sites or open data resources (i.e. maintenance charges, current tax law, district map and photos, neighborhood life, public transportation, nearby shops and amenities, etc.).
With an accurate understanding of the potential buyer's needs, the target asset can be more easily spotted, resulting in faster decisions.
BIM (BUILDING INFORMATION MODELLING) IS A REALTIME BUILDING PROCESS BASED ON A SHARED DIGITAL MODEL, WHICH IS FED BY ALL THE PARTICIPANTS IN A BUILDING PROJECT. AN UPCOMING EUROPEAN DIRECTIVE WILL MAKE BIM COMPULSORY, AT LEAST FOR PUBLIC CONTRACTS.
The same platforms would allow the customer to pay rent online, get the receipt, ask questions and carry out other administrative tasks. The customer can interact with the management company, the owner or the neighbors (Syment Luxembourg), as well as temporarily rent out a parking space (Prendsmaplace) or cellar (Costockage).
Customers can report technical issues and follow up on their smartphones (Syment Luxembourg).
THE ROLE OF STARTUPS IN ALL OF THIS
In a 2016 survey of American corporations (Imaginatik & Masschallenge), more than 75% believe that cooperating with startups is essential, with 25% declaring that it has become absolutely necessary.
These huge companies, along with many others, need to keep up with out-of-the-box improvements, which are less expensive and quick to apply, while meeting new market expectations. By working with startups, they tap into new business models, new technology and upgrades for clients.
The majority of large French corporations has dedicated programs for startups in the form of investment funds, incubators, accelerators and shared workspaces. Modes of startup support have been diversifying, so they are less in need of new funds.
Among startuppers today, only a few strive to be acquired by larger companies. The majority prefer to have just one “low-key” shareholder.
They see partnerships as strategic and as a means to reach the market. However, the increased importance of Deeptech may disrupt this approach since technical needs, as well as industrial, commercial and human ones, have become largely more important than Proptech.
MOST RECENT INNOVATIONS IN PROPTECH
DEEPTECH REFERS TO TECHNO-SCIENCE PROCESSING.
FOR EXAMPLE, KONIKU HAS DEVELOPED A HYBRID SMART-CARD COMPOSED OF A NEURAL NETWORK OF 64 LIVING NEURONS (OR BRAIN TISSUE), WHICH IS DESIGNED TO EXPLORE SENSORY CAPABILITIES OF NEURONS FOR INDUSTRIAL USAGE.
All industries are experiencing product innovation and success arises when consumers are attracted by the service or product.
There are approximately 20 unicorns in this field, most of which are based in China.
Among the newcomers are Opendoor, Compass (online brokers), Wework and Urwork (dynamic coworking spaces), Homelink (home exchanges), ten-x and auction.com (online real estate marketplaces), SMS Assist (uber-izing house maintenance) and Katerra (end-to-end building services provider). Unicorns in the Proptech segment, therefore, cover a wide area, from online real-estate brokers to property management tools, and from homepages and computer algorithms to online marketplaces.
So, are tech companies dipping into real estate or is real estate going digital?
OPENDOOR ASKS OWNERS WISHING TO SELL THEIR PROPERTIES TO FILL OUT A DETAILED APPLICATION FORM, WHICH IS COMPLETED WITH A DOZEN APPLICATION REQUESTS FROM OTHER DATABASES (BIG DATA). THE COMPUTER ALGORITHM IS THEN ABLE TO SET A PRICE WITHIN HOURS. IF THE OFFER IS ACCEPTED, THE OWNER IS PAID IN A SHORT TIME.
ON THE SELL SIDE, OPENDOOR FACILITATES THE PROCESS BY ENABLING APARTMENT VIEWINGS 24H/DAY, THANKS TO A SPECIAL DEVICE SENDING A VISITING CODE BY SMS.
SIGNIFICANT EVOLUTIONS TO COME
According to CB Insights, since 2012 the Proptech industry has raised more than $6.4 billion and funded more than 800 startups. Impressive numbers since this activity was practically inexistent just four years ago.
After a KPMG survey in 2016, investment in this field could reach about $20 billion annually by 2020.
It is difficult to forecast significant evolutions, especially since the whole real estate industry was lagging behind.
(A 2015 Mckinsey Survey demonstrated that the real estate industry ranked no. 7 in terms of digitalization).
Among evolutions which seem to be unavoidable are full digitalization (as we are still very far from achieving), and the funding process, (as traditional players are still calling the shots).
Regarding digitalization, we will start with the digital model BIM for all, which combines building parameters and descriptions of the item used (composition, properties, aging process). This will include the digitalization of all activities (construction works, maintenance, cleaning, improvements etc.) whether manually (izigloo), or through IOT and RFID tags.
IOT will permit home automation at affordable prices, as well provide statistical data on performance (Vivoka). It will also offer actual consumption and predictive maintenance.
In addition, environmental data and assessment, such as acoustics, air quality (plumelab), odor measurement (Rubix), solar activity (Solen) and local services in real time (mobility, convenience stores), will be provided. The owner and the tenant will become full contributors into the property surrounding (Syment).
They can easily and directly exchange views with their neighbors (through a social network for the neighborhood), promoting a sharing economy, producing and purchasing energy (smart grid and blockchain), and carrying out maintenance and renovations smoothly (VTS or SMS Assist).
In terms of funding, the real estate business runs a whole value chain, which is quite fragmented between the property investor, the real estate developer and the building contractor, each one governing its own data. That's a lot of participants claiming their dues.
Real estate crowdfunding has been growing significantly as property developers find it more and more appealing because it allows them to independently raise funds.
(In 2015, real estate constituted $3.5 billion or 10% of the total amount of crowdfunding. Worldtrade Center)
Ironically, banking institutions have started to enter crowdfunding platforms.
According to Robin Rivaton, General Manager of Paris Region Enterprises, the platformization of a large part of the business will add value. It allows decreased operating costs and enhanced capital flows by refining information on market prices (comparing estimated sale prices from property developers with actual sale prices).
Vertical integration is another advantage of these platforms, as they enable channeling of information. Up until now, the real estate developer identified the property and the property investors acknowledged this expertise and knowhow.
Startups can now access the data (Kelfoncier digitizes all urban masterplans in France, and keeps them updated), while the crowdfunding platforms can take advantage of it.
In the future, these platforms will gather data and will be able to know more (just like IBM Watson in oncology treatments). Once information asymmetry has been dealt with, crowdfunding platforms can act as property developers (Lymo).
WHAT WILL THE FUTURE ESTATE AGENT LOOK LIKE?
“The future of real estate is in Proptech.” HERVÉ PARENT
HERVÉ PARENT IS THE ORGANIZER OF THE ANNUAL FAIR RENT (REAL ESTATE AND NEW TECHNOLOGIES).
WHAT CAN WE EXPECT TO SEE?
BIG DATA TO IDENTIFY ESTATES BLOCKCHAIN TO RECORD TRANSACTIONS
3D PRINTING FOR SWIFT PROPERTY CONSTRUCTION, ALMOST WITHOUT BUILDING WORKERS
SALE PLATFORMS FOR MARKETING WITH IMMERSIVE VIEWINGS (THE ASSET, THE BACKGROUND, NEIGHBORHOOD AND LOCAL SERVICES, AVERAGE POPULATION AGE, CONVENIENCE STORES, TRANSPORTATIONS, TAXES, ETC.) BY MIXING VIRTUAL REALITY AND AUGMENTED REALITY.
In this extreme case, the estate agent is obsolete, though this is still unlikely in the near future.
Even if the digital aspect grows significantly, it does not seem realistic to get rid of all human involvement. For the agent, the aim will be to seek complementarity between human and algorithm, using digital tools to increase knowledge, productivity, efficiency and transparency for new innovative services that will be responsive and available 24/7.
BLOCKCHAIN CAN POTENTIALLY REPLACE ALL CENTRALIZED TRUSTED THIRD-PARTIES (NOTARY, LAND REGISTER), WITH A DECENTRALIZED COMPUTERIZED SYSTEM. GHANA, HONDURAS AND SWEDEN HAVE STARTED TO EXPERIMENT WITH THIS.