The real estate industry is experiencing a drastic transformation from it’s existing analogue-based business approach, driven by the need for gaining competitive advantage and greater investment opportunities. PropTech or Property Technology is on the rise and it is a catalyst for digital innovations in the real estate investment sector. According to the 2018 KPMG Global PropTech Survey, 90% of real estate firms were viewing PropTech as an opportunity. Crunchbase.com reports, over the last 10 years, investment in PropTech has increased from $1.1bn in 2010 to $27.2bn in 2018. It also reports that the total amount invested in PropTech across this period (2010-2020) is $92.4 bn. Hence, it is evident that technology in real estate is no longer a myth, but a reality.
By revamping the traditional property dealing with state of the art technologies like Artificial Intelligence, Data Science and Blockchain, the real estate market today is undergoing a fundamental paradigm shift that has created a wider scope of investment in the industry.
Technology in Real Estate: why is it needed in the investment sector?
- Tedious Paperwork
Real estate transactions are still largely paper-based. They are conducted manually and face-to-face which restricts the arena of the property sale exclusively to local investors and buyers. Moreover, physical documents for various due-diligence and transactional record-keeping decelerates the overall process and leaves room for error and misplacement. Herein comes the need for technology in real estate. Therefore, digital solutions like blockchain and cloud storage eliminate the need for paper-based documents. More secure, tamper-resistant and permanent, these technology revamps the entire process of real estate purchase.
- Capital intensive platform
The real estate industry is traditionally an illiquid asset. It requires high costs of entry with a larger capital than any other investment. As a result, the market gets monopolized by wealthy and large investors. Smaller investors with modest resources are plagued by layers of transaction fees, low ROI and higher interest rates against loans. Thus, the real estate sector becomes strongly opaque to diversification. However, Blockchain-based tokenization simplifies this issue. Purchasing of assets through fractional ownership enables a wider base of investors to purchase properties with minimal cost of investment.
In Real Estate, the need for transparency, the accuracy of data and ethical standards are on the rise. According to the Global Real Estate Transparency Index published by JLL, 70% of the countries worldwide have reported an improvement in transparency in the last few years. Nevertheless, numerous jurisdictions are still struggling. This is largely due to market data and performance benchmarks being inaccessible to investors.
However, the implementation of Proptech like big data, blockchain and data analytics maximize transparency, privacy and security of transactions. This allows investors to accurately analyze the available data to evaluate favourable operating conditions and market prices. This in turn broadens the boundaries of the market and attract potential investors through smart choices that augment their ROI.
- Incorrect Predictive analysis
Location is always the primary consideration when investing in a property. Investors should always study the historical trends and upcoming value of a property before investing in it. However, limited analytical capabilities and manual processing of such large volumes of data result in poor investments in low-value properties. Nonetheless, AI and data science process these large volumes of data for accurate predictive analysis. Thus, it assists the investors and buyers to make intelligent decisions while shortlisting a suitable location and property
Technology in Real Estate: use cases
1. Data Science
The real estate sector is a huge ecosystem that generates a staggering amount of complex data every day. This data carries the potential for analysing the volatility of the real estate market and enabling better decision making. Thanks to Data Science, this large volume of data is not left unused but is harnessed by the machine-learning algorithm. Data analytics or Data science is the most potent tool for technology in real estate.
Data Science is the process of extracting knowledge and insights from structured and unstructured data through machine-learning, cluster analysis, and big data. However, KPMG’s 2019 Global PropTech survey found that 80% of real estate firms do not have a data-driven strategy. This contradicted the 2018 PropTech survey that found that 49% believed in data analytics for technologically transforming the industry. Let’s have a look at the ways data science can be applied in the real estate market:
- Property Price Indices
Data science and machine-learning algorithm analyse complex property data. As a result, it provides investors with an accurate prediction of the property’s future performance. Earlier, investors manually conducted these predictions keeping in mind the property location and its proximity to high-value local features. However, data analytics uncover historical trends and evaluate the property’s individual characteristics, locality, demographics and other minuscule data to create granular sub-market indices. As a result, this analysis proves useful for estimating the property’s current price and future return potential.
- Automated Property Valuation
Automated Property Valuation is particularly useful for the accurate estimation of an asset’s value. The key data of the asset is tapped to produce its market value at a low cost. Automation delivers the analysis based on real-time market data in less than no time. Therefore, this also helps in determining the value of mortgages and loans for a particular property.
- Time Series Prediction
Time series analysis helps in forecasting the state of the property in the future. In this process, various macroeconomic conditions are taken into consideration. Factors like GDP, inflation, stock market indices, and mortgage interest rates are considered for mapping the evolution of a property. As a result, Time series forecasting is essential for investors to maximize their returns and making profitable investments.
- Cluster Analysis
Real estate properties perform differently across various geographical locations due to various macro-economic conditions. Let alone different countries, it is a common phenomenon that properties within the same neighbourhood or locality are priced differently. This process of identifying the patterns of similarity and differences in property prices is called Cluster Analysis. Further, cluster analysis also helps in determining the time periods in which the prices are likely to be similar. As a consequence, this helps investors and managers to formulate an accurate and data-backed smart business strategy for separate markets.
- Location Analysis
Geographic Information System (GIS) serves as a crucial mapping software for real estate property location. These spatial analysis techniques work by linking customer data with the map of an area. This enables better site selection based on relevant factors like accessibility to utilities, transport, competitor analysis etc. Further, this also helps investors and real estate companies in strategic planning by analyzing census data and land value. Therefore, an effective location analysis helps investors in profitable decision making and seizing lucrative openings in the market.
2. Artificial Intelligence (AI) and Machine learning
Artificial Intelligence or AI and Machine learning serve as the perfect tools for enabling smart investments in the real estate market. AI algorithms help investors in gaining insights into prevailing and upcoming market trends, increase investment returns and tap on productive opportunities.
Moreover, AI radicalizes investment and buying experience by enabling better access to thousands of online property listings based on an individual’s personal preference. This is a definite progression from the previous scenario when property search sites delivered results on basic preferences like location and price. Machine learning technology today comprehensively aggregates user activity, extract patterns and leverage the data for displaying personalized results based on the user’s preferences and conditions. As a result, users can shortlist suitable properties based on building amenities, price, area crime rate, proximity to the marketplace, institutional and educational buildings, transportation availability, and various other factors.
Besides, AI can efficiently and accurately predict the future market value of a property by analyzing the current market data and historical trends and combining with the area information and characteristics such as crime rates, schools, transportation etc. Such predictive analysis proves extremely beneficial for investors. They can make smart decisions regarding a particular property and prevent spending a huge amount of expenditure in a property that runs potential risks of depreciation in the future.
In addition to this, AI-enabled Chatbots are the perfect replacement for sellers and brokers. Buyers and investors can acquire more information about a property through chatbots. Chatbots are available 24*7 on property search websites and they instantly address every detailed consumer query. Furthermore, these chatbots also ask users a series of questions and filter the answers to display customized results. After finalizing a property, investors can also schedule property visits through chatbots, that arranges meetings with owners and brokers.
Hence, investors can employ these AI innovations to navigate the properties of their preference. These technologies also help investors in making smart choices for better returns.
It is no surprise that Blockchain has radicalised every sector globally with its disruptive technology.
Worldwide Semiannual Blockchain Spending report observes that in 2019, the global blockchain spending reached $1.5BN and it doubled in 2020 to reach around $2.9BN with 88.7% CAGR e.g. growth rate.
However, the forecast spending on blockchain over the next three years will increase even more and achieve $12.4BN with 76% CAGR. These numbers indicate an unstoppable growth pace of global blockchain adoption.
The real estate industry, therefore, has not escaped its disruption either. Fibree.org’s Blockchain Real Estate Industry Report observes that as of July 2020, 297 start-ups dealing in real estate were using blockchain technology, compared to over 400 a year earlier. The overwhelming majority of these are targeting real estate investment and financing applications
The decentralized ledger digitalizes the offline engagements of the real estate industry which is still quite resistant to technological transformation. Real estate transactions involve unnecessary paperwork, a large number of intermediaries and a massive capital investment. As a result, there runs an active risk for property fraud and the market restricts itself exclusively to large and wealthy investing companies.
However, Blockchain accelerates a real estate transaction by simplifying property search, limiting the use of intermediaries, eliminating paper-based record keeping and securing property transactions. The distributed nature of blockchain enables the sharing of the property data with utmost transparency across the P-2-P network, which then allows free and open access to interested investors without any additional brokerage fee. Blockchain also allows the safe storage of property documents for the interested parties which reduces multiple levels of paperwork, manual errors and misinformation.
Moreover, the use of smart contracts eliminates the need for intermediaries in the form of brokers. Smart contracts assume functions like property listings, payments and legal documentation without any third-party, and thus helps buyers, sellers and investors to cut back on brokerage and commission fees. Blockchain-based smart contracts also allow real estate asset tokenization which then results in their cryptocurrency like trading. Tokenization of a real estate asset creates “micro-shares”. This further helps investors to assume fractional ownership of the property even beyond the geographical boundaries. Hence, smaller investors on a global scale can enter the real estate market with fractions of the tokens, which they can purchase with minimal capital.
Further, blockchain also accelerates cross border payments and makes them more transparent. It decreases the use of third – parties like credit card agencies, banks, or governments and employs a smart contract algorithm to automate payments. Digital verification of the property and the entities involved, reduces the due-diligence time period. Also, the immutability of smart contracts ties buyers and investors in a transparent end-to-end encrypted fraud-proof agreement. Hence, Blockchain unlocks greater investment opportunities.
4. Cloud Storage
The real estate industry is still heavily reliant on face-to-face, paper-based transactions even in this digital age. With documents still hand-signed and stored in physical cabinets, the industry requires a much-needed technological intervention in the form of cloud storage or cloud computing.
Cloud Storage is the process of data storage on the internet through a cloud computing provider. This provider stores and manages this data, which the user can then securely access anytime, anywhere via smartphones, tablets, computers or laptops. This system of data storage is extremely reliable, secure and reduces operating costs significantly.
Realtors can use cloud storage as a remote database for organizing and storing their business data and property information. It also helps in cutting on server costs and other expenses involving IT maintenance. Further, real estate businesses using the cloud for storing their files and data on external servers can seamlessly share this information with potential buyers and investors worldwide instantaneously. Hence, cloud storage makes real estate operations faster and more efficient.
5. Internet of Things (IoT)
The digitally connected network of “smart” devices and sensors constitutes the Internet of Things (IoT. This is rapidly unlocking potential revolution in the real estate arena. IoT today takes care of various aspects of property transaction starting from predictive maintenance to property management. It helps in virtual property hunting through dedicated mobile apps. This also allows agents to show the properties to potential customers without being physically present at the location. As a result, the entire process becomes less time-consuming and increasingly efficient.
Further, IoT also creates technologically wrapped smart homes. IoT enables remote automation of security systems in property and further optimizes the use of electricity. Hence, not only does it unlock true digital transformation, but it also increases the resale value of the property. Additionally, IoT can also generate building management systems (BMS) with technological brilliance that create smart buildings in the process.
The market for technology in real estate is booming and the faster companies capitalize on these tools, the better the chances for attracting profitable investment opportunities. In 2019, 58% of real estate organizations said that they had a digital strategy in place, up from a stagnant 52% in the two years prior. Technology in real estate is a much-needed disruption in the industry today. With the growing ubiquity of digitalization in almost every industry and a resultant maximization in productivity, it is imperative that the real estate industry adopts the technological renaissance to boost investments.