RIYAAD KHAN: Deflationary force of proptech will shift property game
The adoption of technology has caused greater productivity, increased efficiencies and reduced unit costs
It only requires a cursory glance at an integrated annual report of a property company to realise just how challenging the operating conditions have been over the past few years for anyone involved in the property sector. But will the wider embrace of proptech (property technology) — and even artificial intelligence (AI) — become a saving grace?
Proptech is information technology that helps individuals and companies research, buy, sell and manage real estate. Similar to the way fintech focuses on the use of technology in finance, proptech uses digital innovation to address the needs of the property industry.
In SA property owners and landlords have had to contend with a deluge of challenges ranging from riots and load-shedding to poor service delivery and unjustified municipal rate hikes. Added to high inflation and rising interest rates, you would be forgiven for finding it difficult to identify where the opportunities lie.
Yet among all these challenges a leading and positive indicator for growth in the sector is the emergence and adoption of proptech. It has the potential to be the great deflationary force while costs associated with property development and ownership are acutely affected by inflationary pressure.
The constant innovation and adoption of technology across all spheres has caused greater productivity, increased efficiencies and reduced unit costs. The advent of smartphones shows how in two decades more than two dozen separate instruments have been combined into a single device with the computing power several orders of magnitude higher than the average computer at the turn of the century.
The application of proptech, and increasingly AI, could have a similarly profound effect on the following markets:
In the residential and student accommodation rental sphere tenant acquisition and retention are some of the highest costs of doing business. But now online marketplaces, tenant engagement and loyalty platforms, rent payment and collection services and maintenance solutions are now all on software platforms, thereby reducing costs.
- In the retail environment, such as shopping centres, understanding the trading and consumer behaviour patterns for different shopping malls and centres has been enabled through enhanced analytics products. This has allowed landlords to improve their tenant offering and tenants to differentiate their customer experience and respond to the specific needs and preferences of their customer base, thereby increasing sales.
- Financial services providers such as banks and insurers are also looking to find ways to use these solutions to improve their ability to service clients. With better information and real time analytics, they are able to analyse opportunities on a more granular basis and make better-informed decisions about risk underwriting in providing goods and services such as property insurance and commercial property-backed finance.
The environment will benefit too. An exciting and increasingly important area of growth and innovation pertains to energy and water solutions aimed at reducing the environmental impact and improving the sustainability footprint of a building throughout its life cycle.
The real estate sector is one of the largest consumers of electricity and water, and in a country such as SA where infrastructure is fragile and wastage and leakage is common, it can lead to a significant cost to landlords if not measured, detected and repaired timeously.
A number of new companies focus on providing AI-powered solutions trained to monitor and detect electricity and water consumption patterns. Combating spurious billing practices using technology is putting property owners back in control of major cost line items.
Within the next decade property will inevitably and increasingly be defined by the rise of the smart building — with foundations in the physical world and operations enhanced by the digital world. A smart building is characterised by its ability to operate sustainably, efficiently and safely by combining the very best of the material and virtual for a superior user experience at a reduced economic and environmental cost.
The fundamentals of sound property investment remain the same, and the location, design, specification and tenant-centric approach to the property management process will always be key. But the differentiator between investors who succeed and those who merely exist will be determined by how they adopt and integrate proptech into their businesses.
Those who embrace proptech as a core part of their business model will be able to achieve greater efficiency, profitability and customer satisfaction. Those who do not, risk forgoing distinctive competitive advantage. This view is shared by some of SA’s largest and most influential property owners. In the recently published SA Property Owners Association proptech report it was noted that 80% of survey respondents agreed that traditional real estate organisations should engage with proptech to adapt to the changing global environment and 75% agree that it will have a significant effect on their businesses within the next three years.
• Khan is transactor in the real estate investment banking team at RMB.
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