Investor Ready: Tech Areas Attracting Funding
Indian real estate for long had been used to traditional ways of working. With the advent of property technologies, it has slowly and steadily moved on to incorporating digital tools. Given the size of the Indian realty market, the opportunities for the prop-tech companies are abundant and so is the investment potential.
Till a few years back, Proptech had not been able to raise funds like other technology sectors such as e-commerce and food tech because of the organized nature of the real estate sector. With the consolidation and maturing of realty space, the Proptech companies gaining prominence and witnessing significant inflows of capital. As a matter of fact, despite pandemic prop-tech firms received investment of up to $551 million in 2020, as per industry study. This has been the peak investments since prop-tech companies began entering the real estate segment about a decade ago.
There are now incubators, accelerators and angel investors that are helping innovators and inventors utilise technology to create sustainable and scalable businesses in the real estate industry mentioned, As a matter of fact, till 2016 investors wouldn’t participate and realty firms were reluctant to take on board the start-ups. After five years, there are almost 2500 start-ups solving all kinds of problems and they are actively engaged with the realty companies in development fields of construction, management, sustainability, wellness all executed tech platforms. This shows the fast paced growth in this segment and investment opportunities.
Sandeep Sethi, Managing Director, JLL Work Dynamics, West Asia, JLL stated, “Indeed, technology is creating new opportunities in real estate as the prop-tech companies are tailoring their software and digital platforms for sector specific problems to productivity and innovate work within the industry. Globally India is among the top three in terms of investment in Proptech.”
With a myriad of factors like rapid urbanization and digitalization, technology is playing a crucial role in even real estate investment segment offering tech-platforms to retail investors for easy investing. While the technologies were already there, their adoption and implementation was accelerated during the pandemic. The financial troubles during the Covid-19 pandemic forced aspiring middle class and retail investors to look for new ways to grow wealth including Fractional ownership of property in commercial real estate.
Amit Ramani, Founder & CEO, Awfis Space Solutions Private Ltd concurred, “The ideas and digital platforms were already there but came into limelight due to the pandemic. For instance, now every company wants hub and spoke model of working that require extensive use of technology, firstly for the employees to stay connected and secondly to enable remote working. Till now digital platforms were functioned more like discovery platforms but, now they also provide digital transactions to close the deal. We can see REIT’s in operation with the help of the blockchain platform. From an investor’s perspective, they will deploy capital in the most relevant technologies, considering the contingencies real estate has faced in the past 12 months.”
VMware Inc. is a cloud computing and virtualization technology company. Renuka Rajagopal, Senior Director, Workplace, VMware| VMInclusion India Co- Lead shared her perspective, “We are working on various standalone applications like City navigator, Help desk with engineering system running at backend. Through all such apps our focus has been on how we can bring efficiency and flexibility in operations. So the investment should not only be in building applications or platforms, but also in the continuous journey and upscaling operations as well.”
The fundamentals that have driven the India real estate growth story continue to remain unchanged. But, today’s market scenario is different from the traditional economic slowdown because of the work from home aspect. Proptech has got much deserved attention because of the pandemic and the rising digital platform usage. Technology provides investors transparency which helps build long-term relationship.
Undoubtedly, in the last 10 years the segment has gone from strength to strength. As traditional business models collapse,. there are stronger than ever capital flows to Proptech. Few accelerators too are providing funding and mentoring targeted start-ups and technological innovators to bridge the gap between the built world and technology.
Proptech start-ups most likely to succeed and thus receive investment, will be those providing technologies that increase workplace safety, simplify virtual communication and improve employee experience.
PROP-TECH VENTURES – HYPE OR REALITY
India’s property technology scene is starting to gain traction as the country’s growing real estate market and increasingly tech-savvy citizens create new opportunities. Moreover, real estate is one of the largest industries and one dealing with high transaction and brokerage values, which demands technology intervention for transparency and efficiency. But, have the Proptech companies been able to address the sector specific challenges and is the realty sector players ready to invest in Proptech?
Sanjay Dutt, MD & CEO, TATA Realty And Infrastructure Limited was of the view that technology has now become an integral part of real estate and is not just a hype. “Those who do not adopt technologies will be left behind in the race to enhance their businesses. Artificial intelligence, IoT, Machine Learning are being used for qualified Lead generation and customer interaction. Design software, construction tech, BIM and 3D technologies have already revolutionized the realty landscape. Even the government is promoting digital India. RERA across states is continuously upgrading the system to communicate with the real estate sector digitally. All such factors present a viable sector to investors for making fruitful investments.”
From the initial resistance to the evolving changes and now the boost due to the pandemic, Indian real estate players from developers, brokers, investors and customers have come around to adopting the latest tech tools for the better good. Before the pandemic, technologies that were termed futuristic by developers and investors have now found ready acceptance. India’s majorly young population comprises millions of nest first time homebuyers. They are tech savvy and active on social media and to reach out to them, developers have to be tech friendly. Industry experts are of the view that the growth of Proptech has just started and has immense potential in coming years.
Sanjay Dutt shared similar perspective, “Due to the pandemic realtors understood how Proptech will evolve in the real estate sector. In the next five years a lot of agent tech companies will be coming in this space. One thing which will shape up Indian real estate will be a change in the behavioural pattern of realtors and their open mind-set for adoption of technology. Real estate developers need to accept modern technologies widely in their projects. Proptech is a long term trend in this industry.”
Amit Ramani added, “Big data and Blockchain that provide transparency in the process will completely transform transactions and many other things in the real estate sector. Artificial intelligence and machine learning will bring efficiency in the execution of construction and realty projects and it will fast track the process.”
Renuka Rajagopal agreed, “Most of the have a long term perspective in terms of investment. Likewise, goals for technology have to be long term and should align well with the company’s business. As the technologies change or get outdated fast, the prop-tech companies need to keep working to scale up and build a sustainable product.”
With the growing consolidation in the real estate and focus on regulatory compliances, technology is aiding the real estate industry in more ways than one as also throwing up more opportunities for investors. The Proptech segment will contribute huge profit to real estate. With the usage of Artificial Intelligence and other technologies to create flexibility and transparency in the business, Proptech has a bright future. In addition, the marque campaigns of the government ‘Digital India’, “Global Housing Technology Challenge’, ‘Smart Cities’, “IndiaChain’, etc. are promoting the use of technology and making the access of technology easier.
Furthermore, the Proptech start-ups provide tangible savings and increase in company’s revenues. Indian real estate invests about 1.5% of their revenue in technology, but it can provide deliver 40-50 percent operational sales with a quick ROI. We need to build an ecosystem of investing in Proptech.
Real estate players believe that technology has democratized real estate making it accessible to even a smallest retail investor. Lot of retail real estate investors do not have facilities like legal and technical evaluation, or data matrix, tech companies provide them the comfort of using a digital platform which will provide all the information to them on a click of a button.
According to Sandeep Sethi it’s the consumer experience that drives the investment in Proptech, consumers being the newest stakeholders. “With the increasing demand for tech-enabled real estate platforms, we will see a significant momentum in the use of AI, Machine Learning and Robotic process automation (RPA) going forward. In fact, real estate is also applying Proptech to address environmental issues. The trend bodes well for the investors in Proptech.”
According to industry experts, post Covid, technology will play a crucial role in real estate revival. Anything that helps to expedite sales cycles will thrive the market. Block chain is not very far from entering the real estate and will be a major disruptor for the sector.
TECHNOLOGIES TRANSFORMING REAL ESTATE
While the Proptech sector continues to evolve quickly, it’s not without its challenges. Cultural norms take time to adapt and most Indians are still resistant towards completing a transaction entirely online. However, developers are now using sophisticated Proptech tools like virtual reality, 3D walkthroughs, drones and artificial intelligence to help potential homebuyers virtually tour their desired property and be aware of its neighbourhood while sitting in the comfort and safety of their homes. These easy-to-use apps are also helping many customers to shortlist and book properties online, based on their preferred location, price and amenities without any physical visit. These apps provide up-to-date information and laws regarding properties, which serve as efficient tools for investors and end-users to make informed decisions..
With buyers mind set and buying patterns changing, the real estate community too has changed to reach out to potential customers through tech interventions. For instance, “We have been working with 40 plus top developers across India to provide solutions in various mediums where we can improve their marketing and communication to the customers. The era of marketing started with using audio based content then text, images and video based communication and now the world moving from 2D based content to 3D based content.”
3D scans are becoming generic. With our smartphone we can capture things and scan them into 3D. We can capture our surroundings and then through 3D scan the unit walkthrough will be ready. Many home buyers ask sales representatives to show flat on video call as well. With the use of cloud computing we can deploy very high quality real estate applications and show our customers videos, images and walkthroughs of the property remotely.
There are now available 3D digital sales experience model, in which one can merge three technologies to create an entire 3D visualization of the product, combine it with the virtual site visit and connect it with digital payment step. This platform has a live video and messaging option for interaction between sales representatives and customer. This completely replicates the physical show flat digitally along with adding the digital transaction.
Most of the technologies aim to reduce the customer acquisition cost for realtors. The slowdown in real estate prompted us to address the problems in the process of home buying and make customer journey exciting to realize sales. Customers usually interact with channel partners, and they need to have tech tools for visualization and mapping of each project with surroundings on maps digitally. Customers also faces the problem of having a lack of understanding of loans and the procedure. Here the Fintech and Proptech companies can work efficiently to guide the customer. After RERA the real estate market has become more focused on quality and timely delivery of project. Con Tech comes in picture here to aid projects faster construction. Furthermore, CRM platform should be used by the sales team, and later this data can be used to analyse the consumer behaviour and buying patterns. We have recently launched a product called ‘Marketing Signal’ which will help realtors plan their marketing mix efficiently. The platform tracks ROI via each medium, be it ATL or Digital and can map 6 variables at present for every campaign running on digital platforms which can affect the CPL (Cost per Lead) and Quality of Lead via an ongoing campaign. There are system-generated nudges that help realtors make an informed decision based on their historical spending patterns that helps them plan their next media mix to optimum driving down the acquisition cost of customers.”
Sanjay Dutt sharing his advice with the developer’s community stated, “Realty firms big or small can no longer afford to not adopt technology tools. Each developer can decide the priority of which technology to invest in first as per the business scale and requirement. As the organization and revenue grows one can keep investing in more tech tools. It is imperative the companies using technology will have an advantage over those using traditional sales and marketing model as they will be able to reach the customer much before others and convert lead into sales quicker.” Giving an example of human aspect of technology he shared, “Across Tata Group, we give a lot of weightage to people that includes our customers, vendor, partners and employees. In the difficult times of pandemic when most were working remotely with no social contact with friends and colleagues, we created an intranet for the Tata Group where they could all share their personal stories. This in my view is the best use of technology.”
Understanding the importance of Proptech in these unprecedented times, the Ministry of Housing and Urban Affairs, along with the National Real Estate Development Council has recently launched an e-commerce portal, where the country’s residential developers will offer 270,000 ‘ready-to-move’ homes for digital sales. With the fast track developments in the prop-tech segment and the recognition as well as the speedy adoption by the realty sector has fueled the investment flow in this segment and is predicted to grow year on year.
With a total investment of USD 2.4 billion, Proptech investments have grown by CAGR of 57 percent (2010-2020), compared to a 10 percent growth in investments received in the overall real estate sector. The average deal size for investments in online business platform grew from USD 4 million in 2015, to USD 70 million in 2020.