What is PropTech, its evolution & things to keep in mind before investing
Till July 2021, venture capital-backed PropTech companies raised over $10.6 billion (up from $8.3 billion raised same time in 2020). This is way higher than the previous year in the past decade. The impressive numbers are a sign of a promising and fruitful return-on-investment that real estate tech companies may generate in the future.
The value of funding to companies in the PropTech sector has surpassed the pre-pandemic level, with property management tech and construction tech startups paving the future. In this blog, we talk about what is PropTech, the evolution of PropTech and 5 things you should keep in mind before investing in PropTech.
What is the PropTech sector?
PropTech, which is short for property technology, essentially means digital transformation in the real estate and property industry. It is a collective term that describes a wave of technology and innovations specifically in the real estate sector focused on enhancing how people look for, buy, sell, rent and manage their property portfolio.
But why are startups around the world looking for ways to optimize how things are done in the industry? It is because conventional real estate practices have many disadvantages. Some of them are the constrained supply, tedious payment process, tiresome leasing process and lack of innovation, flexibility and automation.
Real estate tech companies and PropTech companies focus on addressing these (and other) challenges with a ‘digital transformation’ approach.
The PropTech evolution (or should we say – revolution?)
The World Economic Forum has divided the PropTech industry into 3 categories – PropTech 1.0, PropTech 2.0 and PropTech 3.0.
PropTech 1.0 majorly comprised the growth of online property listing websites. It began in the 1980s with the innovation and adaptation of personal computers around the world. Property analytics organizations were set up that produces real estate data in bulk. The wave came to an end in 2000, and at the same time, real estate agencies decided to go online.
The first category or wave was mostly about established organizations in the real estate industry going online, the second wave was about the emergence of startups operating in the residential, commercial, and mortgage sectors. These startups can be classified into 3 verticals: smart real estate, the shared economy, and real estate fintech.
- Smart real estate: This encompasses tech platforms that enable the operation as well as management of real estate assets with the help of the Internet of Things (IoT). IoT is a major driving force of change in the real estate tech sector that has inspired aspects like energy efficiency, smart construction and sharing economy. This technology enables both users as well as investors to expect buildings to operate cost-effectively and, simultaneously, are highly functional.
- The shared economy: This one is established on transactions that enable the sharing of real estate assets and properties. These assets can be land and buildings, which includes offices, shops, storage, houses, and other types of property. The shared economy platforms offer data and information for potential buyers and sellers of space and even facilitate or effect rent based transactions.
- Real estate fintech: This vertical revolves around the trading of real estate asset ownership, both leasehold and freehold. Startups functioning in this vertical facilitate faster and much more convenient trading of real estate assets, including buildings, shares or funds, debt or equity, helping in lowering the illiquidity of the solid asset class.
New, innovative technologies are opening the gates to many more opportunities to redefine the real estate market. Innovations in the finance sector are enabling the real estate industry sector to enhance the fluidity and transparency of its operations with security mechanisms. Futuristic technologies like Big Data, Augmented Reality and Virtual Reality, cryptocurrencies and 3D printing will continue to play a bigger role in PropTech.
The real estate sector has been restructured and redefined by big investments in new, disruptive technologies. Global venture capital investment in the PropTech sector has crossed $61.1B since 2010, as per investment data from Pitchbook.
If you are also planning to invest in PropTech, here are 5 things you should keep in mind before doing so.
Things to keep in mind before investing in PropTech
1. Source reliable, trustworthy partners
The PropTech sector is still a novel one, with startups and new companies trying to gain the spotlight. Make sure you verify the credibility and reliability of partners. By doing so, also measure the success of what they’ve created. Have a close look at their CVs, conduct background research and gain their perspective.
2. When it comes to PropTech investment, always think long term
Your investment in any PropTech company should be much more than a fix. There is no point in paying for something that might become obsolete in time. The company should also be capable of holding out against future changes and challenges. Before making any PropTech investment-related decision, know that a USP should be ‘futureproof’. With ever-changing technological advances, being prepared makes the most sense in business.
3. Give leverage to Big Data
Understanding people’s lifestyles and comprehending patterns involve innumerable variables. Conventional ways of figuring them out and computing data is tough for standard computers. With the help of Big Data, property managers can gain a clear understanding of the user’s facility usage, degree of use, frequency, etc. and apply it across the business. This level of clarity and sophistication can bring many insights for managers to make key decisions.
4. Make the most of data-empowered automation
Understanding macro behaviour opens the floor to automation that’s designed for addressing the most commonly observed behaviour in the structure. There are automated solutions that can schedule downtime for idle equipment in offices and systems that decrease certain lighting based on use. With big data and automation, the possibilities are endless.
5. Recognize the need before purchasing
Some solutions facilitate offices alone, while some are more suitable for entirely different kinds of property. There’s a multitude of potential and attractive selections available, so consider your property needs. Some of the key factors involved are the number of tenants, geography, the type of tenant companies, and the workday structures. So, make sure to understand what your specific requirements are before tailoring your solutions.
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