SUMMARY
India’s real estate sector is expected to reach a market size of $1 Tn by 2030
With tech as an enabler for real estate, Indian proptech startups received $242 Mn in between FY16 to FY18
Proptech players like Square Yards are consuming primary residential sales market share
Proptech is reshaping the Indian real estate sector at a time when the industry needs a real shot in the arm. In much the same way that innovative technology transformed so many other sectors, like Ola’s re-think of the taxi business and Oyo’s colossal expansion in the budget hospitality market.
The most visible shifts so far have been in residential real estate, where companies have built platforms to ease home buying transactions. On the commercial side, coworking providers like 91springboard, Oyo Workspaces and Innov8, Awfis and WeWork are doing their bit to disrupt the office space market.
Fuelled by rapid urbanisation, increasing disposable incomes and rising dual-income families, India’s real estate sector is expected to reach a market size of $1 Tn by 2030, up from the $120 Bn in 2017. By 2025, Indian real estate will contribute 13% to the country’s GDP, and there’s definitely a need to bring in efficiencies through the use of technology, to reduce losses, friction and customer dissatisfaction.
Despite this large opportunity, every stakeholder in the property transaction chain in India continues to face inefficiencies on a daily basis:
- Information asymmetry — in markets, in building efficiency, almost everywhere in the business
- The need for multiple intermediaries in all transactions (real estate and mortgages)
- Cumbersome and intensive legal agreements, which in a country like ours are as opaque as fortress walls for the common property buyer
- Inefficient building systems and building programming
- A lack of ability to scale processes quickly
This list could go on and on, reiterating the fact that there are numerous challenges in translating the physical world into the digital realm. However, India’s proptech journey has seen some bright successes so far to prove that the market could be on the cusp of a revolution.
How Proptech Has Evolved In India
Early proptech startups in India focussed mainly on providing digital marketplaces for listing residential and retail commercial real estate, driving benefits of market reach and reduced intermediaries to the end user. Companies such as Magic Bricks, 99 Acres, Housing and CommonFloor, through years of hard work, managed to get both buyers and sellers online, addressing information asymmetry as best as possible.
But this also led to crowding in that space. Competition increased as many online real estate platforms sprung up and suddenly, consumers needed greater access to real estate information for effective decision-making. This pressing new need resulted in the early proptech players improving their service differentiation by presenting complex data visually and providing additional information features.
Parallelly, the rising real estate transaction flows fuelled the need for organised market information and data analytics – a major market gap distinctive to the opaque and fragmented nature of Indian real estate.
Tapping into this untapped market need, proptech data aggregators offering real estate market data services also emerged. So far, housing search was one of the key focus areas for end users utilising tech-enabled real estate business platforms. But the Indian consumer was looking for more.
This search led to the entry of the full-service players. This new crop of proptech startups realised that utilising tech that is shaped by consumer demand was the way forward. Keeping home buyer delight at the heart of its tech brief, full stack proptech players like Square Yards and Proptiger emerged on the scene, rapidly consuming primary residential sales market share. These firms successfully took an ancient business model and used technology to connect the various dots that had been barely connected thanks to shoddy information relay systems or in the Indian context.
Full Stack Future Of Indian Proptech
The real estate industry is traditionally resistant to change. But as connected consumers today seek more out of their home buying experience, the communication gap between proptech startups and legacy real estate players is reducing.
At the showcase level, experimentation with emerging technology such as drones, virtual reality tools, IoTs and blockchain maybe at the forefront, but today, what the consumer truly seeks from proptech startups is full lifecycle support for a property transaction. Proptech firms that have internalised this brief seem to be at the forefront of India’s real estate disruption.
Take Square Yards, for example. Its tech platform tracks tens of data points pertaining to every noteworthy primary project in the country, helping the company better analyse the risk-reward quotient for potential investors and end-users. The numerous intermittent processes such as agent and customer interactions, site visits, information disclosure, availability of desired unit, financial proposals, mortgages and final closure are all governed and monitored by the tech platform in real-time. This translates into a seamless and delightful home buyer experience, resulting in the firm taking top slot as India’s largest brokerage firm.
While Indian proptech startups received $242 Mn in between FY16 to FY18 from an overall sector perspective, revenues of full-stack digital housing service providers are likely to grow at a double-digit rate in the near future.
As per KPMG and NAREDCO’s latest proptech report, the global focus has now shifted towards online marketplaces, integration of digital technology, and innovative business models. The proptech market is expanding at a reasonably fast pace, evidenced by
heightened investment activity in the sector.
Proptech companies raised $7.8 Bn investment between 2013 and 2017, comprising 179 proptech startups. Over 60% of these companies are in the Asia Pacific region. As the demand for property tech innovative solutions rises, $3 Bn is expected to be invested globally in 2019 for the growth of proptech companies. Also, M&A activity in the sector has seen a significant increase in the last few years. Global VC investment into proptech has been on a steady rise since 2015 and already consolidation trends are also emerging.
To sum it up, the report cites that globally, investors are looking at proptech as the silver lining expected to drive future growth in the real estate industry.
Square Yards, now valued at close to $300 Mn, has earned the market rewards and gained traction quickly. Currently, the startup has an annual gross transaction value (GTV) hovering around the $1 Bn mark and an annualised revenue run rate of over $45 Mn.
Ushering In Change Through Proptech
Most full-stack proptech players in India have remained focussed on the residential property segment considering the burgeoning housing shortage, rapid urbanisation and urban migration trends. While real estate market cycles are what they are, a shift in consumer demand towards affordable housing and the opportunity of residential real estate distribution reaching a gargantuan scale was something the aggressive full-stack players were not willing to let go easily.
As leading firms like Square Yards invest heavily on tech and talent to create disruption, what they are bringing in today is a welcome change.
Firstly, proptech brings lower transaction costs and enhanced consumer convenience — underlining the fact that the customer is king. It also results in improved unit sales and rental occupancies due to ‘best match’ between the property buyer and seller (or a landlord in case of rentals).
Companies also get shorter liquidation cycle and faster transaction time can sell subscription or add-on-based services. Finally, they can also run an effective and hassle-free promotion of newly built properties via online virtual tools. For customers and developers, the bypassing of intermediaries and related costs is also an added advantage.
As a result, the real estate industry at-large is witnessing ever-increasing exclusive tie-ups between full-stack proptech players and real estate developers to provide solutions to consumer needs. This is exciting considering that the real estate industry is traditionally quite resistant towards tech-driven change.
But consumer demand has always dictated technology adoption, so as the tech-savvy property buyer becomes more attuned to real estate inefficiencies, demand for proptech will continue to grow and it will pay to keep this new breed of proptech companies such Square Yards on the radars, as they enter the mainstream conversation.
