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PropTech – Growing Pains and Opportunities

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The “PropTech” industry continues to gain momentum as entrepreneurs and start-ups strive to develop innovative technologies that streamline everything from the research, funding and conveyancing processes through to assisting vendors / developers achieve optimal sales values and lettings management.  Others, such as Rayhan Omar (@RayhanRESI) – interviewed below – are tackling wider issues such as addressing the housing shortage and the lack of first time buyer affordability, particularly in London and the South East.  Rayhan has also been blogging on the PropTech space through his regular insights into emerging trends via his own publication – Real Estate Pundit – as well as guest posts in the Property Industry Eye and the Estates Gazette.

Can you tell us a bit about your own background – what triggered your interest in prop tech initially and made you start writing the Real Estate Pundit blog?

I was raised in the world of property from my family business to my first job at Hamptons in Wimbledon. I took my own hand to tech by founding Wigwamm. When Wigwamm didn’t work out as planned, I thought there was a gap in the market for news and commentary on Proptech; hence That’s now led me to expand my writing on the space with the Property Industry Eye and other publications.

How do you envision the evolution in the way British people buy and sell property over the next decade?

It won’t change. Buying and selling property will look largely the same in 10 years with all the same problems of chains, conveyancing hiccups and massive amounts of friction. Technology just isn’t enough. People need to be less fearful when selling/buying. Unfortunately, they are just over-awed by the emotion and silly amounts of money involved.

Where do you see the most promising trends at the moment?  Are there any particular innovations or ideas that are really capturing your imagination?

Opendoor in the US has succeeded in re-inventing how you both sell and buy homes. But it is a niche offering.   I think most advances will come in the acquisition of land (using data) and building homes in a smarter and/or faster way. [Land Insight´s work is an interesting example of this].

Are there any projections as to how much capital has been / is being invested into the PropTech industry? 

Whatever the numbers are, they are so (embarrassingly) small that no one has bothered to measure it. CB Insights quote some $1.5bn but I think their definition is just too broad.

It is easy to get captivated about all the hype about “what´s new” and fresh and forget the importance of taking a holistic view of the market.  As someone who clearly examines this industry in great detail, are there any interesting ideas or concepts in the affordable and social housing space – particularly catering to Greater London and the South East?

Ah, finally a topic that everyone agrees is of paramount importance. The best ideas come from the CreateStreets campaign – you can follow them on Twitter @CreateStreets. Land is the big problem. If by sheer force of will government frees up land and removes preference for private corporate developers, then we might make some progress with social housing. But currently London and the UK generally does not have very many social houses built. The demand is incredible, but there’s just no capital chasing that demand. It’ll only be government who can step in here. And they don’t have the will to help. There’s a great graph showing how social house-building has been decimated:

London Housing

Tell us about Unmortgage?

The Unmortgage started out from a blog post that a friend then titled: “Don’t get a mortgage, get a crowd”.  After some consumer testing, we’ve refined that to “Help to buy a home without a loan”.  The model bridges the gap between renting and owning, by leveraging the involvement of Pension Funds.  The client rents on the unowned portion and can decide to increase ownership of the property. With this reduced risk, checks need to be made that the rent can be afforded.   Consumers will be able to own as little as 5% of a home worth up to 10x their annual income (as opposed to the 4x a bank mortgage lends) and desirable homes in the right areas can be purchased.   They pay rent on the portion they don’t own. And because there is no loan, there’s no risk and they aren’t obliged to buy more of their home. But of course people will want to buy more of their home and we make that both simple and flexible from a dashboard with a live price of their home. We’re now talking to institutional investors to replace the “crowd” to help people buy Unmortgaged homes.

Arguably one of the most watched and fast changing areas of the industry, what are your thoughts on the future direction of the online estate agency?  What do you think it would take to create a service that is both cost-effective for vendors but also caters to their needs (for example via local knowledge, which many online estate agencies often lack)? 

I’d argue that online sales agency is not fast nor changing. It was less than 5% of the market 5 years ago. And surprise surprise less than 5% of sales today go through an online agency.  The most important reason why is perception: if you tell people you will sell their home, for less, then you’re telling them you’ll sell their home for less.  Online agents will do better when they use tech to add value and charge higher fees to make people perceive they are getting a better service.  Without being overly disparaging, the low fee nature of today’s online agents are why they are failing and it is summed up by: you pay peanuts, you get monkeys.  It should be mentioned that many, many traditional agents fit that stereotype.  If the first thing an agent does is drop their own fee (when you negotiate fees with them), then do you really think they’re the best person to negotiate your own home sale?

Is a digital estate agent / auction house actually a good idea in your opinion?

Yes, if there’s tech that genuinely makes the consumer experience better. Like Nested trying to solve the problem of chains with more accurate pricing (using data). [Nested provides a property valuation and, if the vendor is happy to move forward, the company will guarantee to sell for more within 90 days, or buy it themselves if not].

On auctions, something like 40% of homes in Australia are sold in this way. They are obviously better for seller and agent. Buyers will always be losers if they don’t have better access to data. Services like Zoopla make buyers dumb with random numbers generated by their inaccurate house price data.

I for one have been particularly impressed with the growth of property crowdfunding as an alternative to the onerous and relatively risky nature of bridging, JV finance etc. Whilst many start-ups in the segment have struggled under the range of regulatory demands, where do you see this particular industry heading?

LendInvest and Dragonfly Finance (backed by Octopus) now own the short-term bridging loan space. And it isn’t really crowdfunding that enables that. It’s offering more transparency and getting a better handle on risk scoring. If you’ve ever tried to get a mortgage, you’ll understand why LendInvest’s quicker decisions are now the go-to for professionals in property development. Property Partner, with their superior funding and execution, have demonstrated clearly that there isn’t massive demand for self-select property investment. Funds are just easier for people to understand. There just aren’t any attractive, simple funds for people to invest in yet. But that will be the future of retail property investing.

I should add that all property professionals have the same problem: sourcing stock. That’s why The Unmortgage changes the world: wannabe-homeowners do the hard work of sourcing the best homes and maintaining them, making the investment proposition the most attractive the world will have ever seen.

On 29th July Rayhan will be pitching The Unmortgage alongside 3 other proptech start-ups raising seed / SEIS funding.  Click here for more information.

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