The Property sector in the digital age

Author: EIC | Economic Intelligence Center
Published in Bangkok Post/Asia In Depth: Asia Focus section, 1 August 2016

As a result of technology, many businesses have been disrupted forced to change to ensure their survival and growth. New initiatives have revolutionized doing business with digital platforms nowadays. This has introduced new buzzwords to the world, such as Adtech, Fintech, Healthtech, and now in the property sector we have Proptech for Property Technology. Proptech aims to reduce paper-based processes and provide ancillary services across sectors, leading an inevitable wave of change in innovative property technology.

List and search Proptech using online platforms is shaking traditional estate agencies, with potential growth of around 93% per year. This platform signals a paradigm shift in tackling problems ranging from commercial leasing to residential property by removing the presence of middlemen disrupting traditional agencies. Typically combining new technology for data access with essential analytics and connecting home seekers and property owners directly, this disruptive technology will see traditional agencies facing hard times because the insight information Proptech provides, such as current market pricing or recent sales transactions, creates a more transparent and efficient market and lowers barriers that formerly made the property market very difficult to enter.

Proptech provides alternative lending for property development through crowdfunding, and funding of this type has persistently increased by around 40% each year. Proptech startups offer hassle-free property investment with extensive information on investment, valuation, rental reviews, and diversification reports. Moreover, it offers an opportunity for small investors to become property investors by raising small amounts of money from a large pool of people through an online platform. This competes with traditional lending by financial institutions, but is limited to loans for small scale property development.

Geographically, the US market accounts for almost 50% of the billions of dollars in global venture capital injected into Proptech startups from 2010 to 2015. As the world's largest economy, the real estate sector in the US accounts for around 13% of GDP, with a total value of around USD 2.4 trillion in 2015, making US-based Proptech startups the largest such market in the world. According to a report by CB Insight, the top 5 funded segments were property information (29%), tech-enabled brokerage (19%), list and search services (17%), crowdfunding investment (9%), and property management (8%). In fact, property management and list and search services were the fastest growing segments in 2015.

China and India are the biggest two Asian markets for Proptech, capturing around 26% and 8% respectively. Undoubtedly, the large size and diverse populations of the two countries, around 1.6 and 1.4 billion people respectively, attract investors interested in lucrative business propositions. A number of deals were struck in 2014, with India taking two times the number of deals than China, while China enjoyed a higher value of venture capital. Many US-based companies are trying to spread to China, but the Indian market is performing better than China. This is primarily because Indian policies offer a friendlier environment compared to China, and communication is largely in English, while the Chinese market principally conducts business in Chinese.

Aiming to be the hotbed for startups in South East Asia, Singapore-based startups in the property sector absorbed around 6% of venture capital funding. Although Singapore has limited resources and a small population while businesses need scale, the government's tactical strategy is prompting startup incubators or innovation labs, which startups can grow and further expand to neighboring countries such as Indonesia, Malaysia, and Thailand. Property Guru is the most successful Proptech startup, raising USD 49 million in 2012 and USD 129 million in 2015 and acquiring top property websites all over South East Asia, including DD property in Thailand. Furthermore, top property developers like CapitaLand recently announced the set-up of “C31 Venture” for USD 11.05 million, and eagerly plans on investing up to USD 73.6 million to expand beyond Singapore.

Thailand’s property market is in the sites of Proptech startups given the scalable size of its market of nearly 25 million registered houses in 2015. Each year about 618,000 additional houses are completed nationwide, fostering a resale market and of course the Proptech startups related to the resale property process. Following the global trend, list-and-search and tech-enabled brokerage Proptechs would be the first two pioneer segments to roll out at an early stage. The recent “Startup Thailand 2016” event was the first and largest such event of the year, unveiling over 200 top startups. One of the star Proptech startups is Hubba, that reshapes an ordinary workspace into a meet-and-share co-working space for freelancers. Thus, Proptech startups could be very attractive to a new generation of entrepreneurs.

One of the pitfalls for startups, including Proptech, is that cold, hard statistics indicate that their failure rate tends to increase at a progressive rate every year of operation, with 9 out of 10 startups failing. The first three reasons for failure were a lack of market need (42%), followed by lack of sufficient capital or running out of cash (29%), and poor teamwork (29%). The data also revealed that startups founded by a single individual with no partners are more likely to fail because of poor marketing and lack of a team. Thus, the key to being one of the 10% of startups that survive is that the product they offer must meet market needs. New Proptech startups should start by rethinking everyday problems faced in a difficult property market, and improve their visibility and transparency in order to empower home-buyers and other participants.