Proptech: The Future of Real Estate

The rise of the internet and mobile technology has fundamentally changed the way we live.

All sectors of the economy have been greatly impacted by this internet boom.

Real estate sector has been one of the laggards when it comes to this technological adoption.

However, of late, proptech has become a buzzword in the startup community. As a result, there are hundreds of startups which are now backed by millions of dollars which are trying to bring technological advancement to the real estate sector.

It is true that most of these startups will not survive the next few years. But the few that do survive will end up having a deep impact on this slow-moving industry. These new startups which are trying to imbibe internet and mobile telephony in the real estate sector are now being known as proptech.

In this article, we will have a closer look at the definition and scope of proptech. Also, we will try to understand the different verticals of proptech.

The Definition of Proptech

There is no clear definition of proptech as of now. This is because proptech is often said to be a small part of the digital transformation of the entire real estate industry. The changes taking place could be technical, or they could be related to the buying processes that have traditionally been part of the real estate industry. Proptech is also a wide concept which encompasses both the financial as well as the construction side of the real estate industry.

Simply put any real estate startup that is trying to offer innovative products or solutions which extensively use technology can be categorized as proptech. Since the trend is relatively new, it is likely that the scope will change over time and new verticals may get added under the umbrella of proptech.

The Different Verticals under Proptech

At the present moment, proptech has three main verticals. The description of each of these verticals is explained here:

• Smart Real Estate: Smart real estate is more towards the construction side of homes. For example, the use of technology in order to create energy efficient homes can be categorized as proptech.

  Most startups in this genre use the Internet of Things to collect data about the construction of homes or their day to day maintenance. This data is then used to create a control system wherein the energy consumption is automatically regulated to remain at efficient levels.

  Hence, smart real estate functions at two levels.

  On the first level, only information is provided whereas on the second level corrective actions can also be triggered based on the information received.

  The real estate assets that are managed using this technology could be single buildings or even entire cities! The focus on this vertical is very high because delivering energy efficient green buildings is no longer a unique selling point. Instead, it is something that the marketplace now demands.

  Smart real estate is not only about the environment. This is because if the buildings are designed effectively, then the electricity and power consumption is low. Thus, realtors can offer a more competitive lease price to the prospective tenants and win over their business.

• Sharing Economy: The sharing economy is an economic revolution that has become a force to reckon with. There are several unicorn startups like Uber and Airbnb which have already grown out of the sharing economy.

  On the real estate front, companies like WeWork have started building shared office space. The sharing of real estate is largely enabled by the internet which allows easy aggregation of supply and demand. Also, tools for billing and managing the property are available online.

  The sharing economy has become the norm in cities where real estate prices are very high. This is because prohibitive costs make complete ownership difficult. As a result, sharing and temporary ownership have now become the norm.

  There are two ways that startups can participate in the sharing economy.

  First, they can simply be brokers and obtain a fee from every transaction.

  Secondly, they can be involved in providing services and be an intermediary in the business.

  Shared working spaces have gone from 1% to 14% in places like Central London where real estate is hard to obtain and traditional lease contracts are inflexible.

• FinTech in Real Estate: There are many innovative ways in which financing is deployed in the real estate sector. All these new mechanisms come under the aegis of Fintech in real estate.

  The startups in this vertical are focused at providing information to buyers and sellers in order to make a sale. Right now, this information is available only with the brokers who tend to protect it. This is because the brokers can only survive on a small number of highly remunerative transactions. However, this inefficient broker model is likely to be replaced by technology in the future.

  There are many startup companies like Trulia and Zillow which allow customers to rent real estate online without the need of an actual broker. Also, some of these companies are providing services to facilitate online payments between the landlords and the brokers.

To sum it up, the real estate sector is going through a massive transformation. It is likely that it may become more efficient in the future and proptech has a big role to play in this increased efficiency.

Authorship/Referencing - About the Author(s)

The article is Written By “Prachi Juneja” and Reviewed By Management Study Guide Content Team. MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. We are a ISO 2001:2015 Certified Education Provider. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to ManagementStudyGuide.com and the content page url.