Can proptech disrupt real estate in emerging markets? | [term:name] 2022

– Rising borrowing costs and global economic uncertainty weigh on the sector

– Real estate technology (proptech) can unlock market efficiency

– Proptech startups from emerging markets continue to attract investment

– Successful proptech companies seek to expand regionally

Emerging markets are increasingly leveraging data and software to disrupt and streamline their real estate markets and meet the needs of young people and businesses.

Real estate technology (proptech) consists of a suite of technologies that make business transactions around residential, office and retail properties more fair and transparent. Operating at the intersection of financial technology, construction technology (contech), smart real estate and the sharing economy, proptech ranges from investment platforms to match retail investors with real estate assets, property management platforms.

Last month, Nigerian proptech startup Spleet announced that it had received $2.6 million in seed funding, including from Los Angeles-based venture capital firm MaC Venture Capital, to expand its business. .

It offers a variety of payment options to its core customer base of middle to upper income tenants in Lagos, including what is known as “rent now, pay later” – a structure similar to the “buy now” option. , pay later” which promotes financial inclusion in emerging markets.

Spleet has processed more than $3.5 million in rents since its inception in 2018, but also has more than 68,000 unmet requests, suggesting additional wiggle room. In July, it became the first African start-up to join the MetaProp NYC real estate technology accelerator at Columbia University.

A global market

Amid global macroeconomic headwinds, rising US interest rates, and volatile global real estate prices, proptech has the ability to bring more predictability to real estate markets and connect landlords and tenants through transparent transactions.

Although Airbnb was an early pioneer in the proptech industry, today there are more than 9,000 proptech companies around the world that are constantly adapting their services and models to meet growing urban populations. and the changing demands of the global real estate market.

The U.S. proptech market is expected to grow 16% annually to reach $86.5 billion by 2032, according to consultancy Future Market Insights Global, which predicts a growth rate of 23.7% for China and 26.5% for Japan.

In the first quarter of 2022, venture capital funding for proptech reached a record $4.4 billion, a 41% increase from the fourth quarter of 2021 and a 31% increase from the first quarter of 2021, according to a report by investment bank Keefe, Bruyette & Les bois.

However, rising interest rates are undermining confidence in proptech investments in many developed countries as house and apartment prices continue to fall from their post-pandemic highs in 2021 and the first six months. of 2022.

New York-based venture capital firm MetaProp produces mid-year indices that track confidence in global proptech investments and start-ups. Its global index in 2021 stood at 9.3 out of 10 but fell to 5.8 in 2022, while its start-up index moderated from 8.3 to 4.2.

Open rules of the game in emerging markets

While this represents something of a market correction for developed countries that have been deploying proptech for years, the situation in emerging markets is different, largely due to the increase in the number of people moving to cities and towns. the resulting demand for housing.

In 2000, about 15% of the world’s population lived in cities, but this figure has risen to 50%, or 4.4 billion people, in 2021 and is expected to reach 66%, or 7.7 billion people. by 2050, according to forecasts by the International Finance Corporation (IFC).

With direct government housing subsidies unavailable in most emerging markets, the IFC estimates that up to 1.6 billion people will struggle to find housing by 2025.

Pakistan is identified as a thriving space for proptech given its large and young population – with a median age of 23 – who seek to settle in crowded cities, causing the demand for housing to exceed the offer.

Karachi-based MyGhar, for example, offers furnished private and shared rooms with all-inclusive billing, while DAO Proptech uses its platform to offer different ownership options and raise interest-free capital for developers.

Given the potential for growth in markets with similar demographic trends, emerging market proptech start-ups have recently benefited from significant investment, not least because a relatively small amount of seed money can go a long way in building platforms. forms and the exploitation of data.

Downside risk and potential for innovation

At the same time, however, real estate markets are complex and generally governed by their own legal idiosyncrasies – not to mention different cultural values ​​from country to country. Additionally, real estate transactions are often private and unreported, which limits the potential for any data-driven analysis and pushes the market towards a more traditional brokerage model.

The best example of a failed proptech start-up in emerging markets is Propzy in Vietnam. After raising $25 million in 2020 with ambitions to expand into Malaysia, the Philippines and Thailand, financial difficulties and an inability to raise additional funds prompted her to announce last month that she was putting end to its operations.

Merging proptech with contech, however, could help the segment ride out the headwinds of the global economy.

This approach has been taken by Tel Aviv and New York-based venture capital fund Built Up Ventures, whose flagship startup My Tower manages more than 250 residential towers in Israel and has also entered the Polish market.

My Tower’s innovations on the contech side include the use of autonomous robots, advanced computer vision, laser detectors, geopositioning and inertial motion sensors to reduce operational costs by up to 50%.

Entry into a new market and regional expansion

Some proptech companies are pursuing regional expansion strategies to take advantage of common legal, financial and social frameworks for real estate.

Proptech companies are enabling the current real estate boom in Colombia, where supply is growing rapidly but still falling short of demand. La Haus and Habi, two Colombian companies, recently raised $158 million and $100 million respectively, part of which they plan to use to expand into other Latin American markets, starting with the Mexico.

The Haus has operated in four Mexican cities since 2019, and Habi purchased two Mexican real estate companies in January.

Proptech platforms also allow foreign investors to enter new markets. Proptech company Naya Homes, which specializes in managing vacation and short-term rentals in Mexico, raised $5 million two weeks ago.

Meanwhile, in the Middle East, Dubai-based proptech start-up Stella Stays announced last week that it is partnering with Cairo-based real estate firm Tameer to enter the Egyptian market.

The companies plan to build new properties, starting with a ready-to-live-in apartment community in New Cairo. Stella Stays is present in the United Arab Emirates, Saudi Arabia, Turkey, Bahrain and Canada.