PropTech is still a fairly ‘embryonic industry right now’, but interest is quickly rising, according to Reech Corporations Group chairman Christophe Reech in a research interview with FinTech Global.
“I never look at the volumes of VCs and the reason is because investors go to where the market can absorb the capital they have raised. That’s not necessarily an indicator to what does and doesn’t work.”
Funding into the PropTech sector declined last year from the $2.6bn that was invested during 2016, down to $1.8bn, according to data by FinTech Global. While there was a big drop in the amount invested, there were just seven less deals across the year. Despite the dip, funding in 2016 had nearly doubled from the levels reached in 2015, and the high level was due to four deals valued above $200m.
While there has been this decline in funding, Reech does not think this is an accurate depiction of the space. He said, “I do believe in the fact that PropTech is actually a very embryonic industry right now, it hasn’t really started yet. There is a lot of talk about it and its clearly a hot topic right now. But, if you look at what is actually coming out of startups, new technology and the area, it’s very much the beginning and hasn’t taken off yet.”
The drop-in funding levels looks to be changing with the PropTech sector currently being on a three-quarter rise. In Q4 of 2017, investment volume hit $1bn which is over three-times more than the capital raised in the previous quarter.
Reech said that the PropTech space is currently quite far behind FinTech, which has ahead in maturation by around five years. “The reason for this is because traditionally the real estate segment is a more down-to-earth relaxed type of population and community and consequently the hype of technology is not as quick to penetrate that as in the financial sector.”
While the sector has lagged behind, pace is starting to pick up and the industry is starting to accelerate and modernise with technology. Not only is this touching various areas of the real estate industry, but its is also creating new ones. One of the things that the space does need is more technology to cover all areas of real estate and help build smart cities. New solutions can make savings through construction, planning and energy to combat losses made through challenges like a lower availability of land. The key drivers of this will be deeper data and artificial intelligence.
The financing side of PropTech is another segment which is going to receive a lot of attention over the coming years. Platforms are coming through which are providing people with access to buy, build and rent real estate, as well as simplifying the processes involved.
“The model of the buy and sell or rental which was intermediary of intermediary between buyer and seller, is going to disappear. People don’t want to have anything to do with a chain of intermediaries, they are not efficient, they think they bring liquidity to the market, but they don’t they stop it,” he said.
North America initially dominated funding into the PropTech space, accounting for 67.7 per cent of all deals in the space during 2014; however, its grip on the sector has declined to 49.3 per cent. In contrast Europe has seen its share in the market rise since 2014, increasing from 19.7 per cent to 37.1 per cent.
Reech said, “The famous theme of Silicon Valley as the only people capable of technology, might have been true 10 or 15 years-ago but not today. If you go to Berlin, you will find as many Americans, Singaporeans, etc, out there doing FinTech than anywhere else in the world and the same is with London. Europe is an amazing hunting ground for us.”
A PropTech platform that has caught the attention of Reech is a blockchain-based platform for financing real estate, which is also open to private individuals. Blockchain is an area which he sees really taking off for the industry with being capable of changing the way processes are done. “Once you start on blockchain you start to introduce more liquidity and transparency in the transactions, it doesn’t mean we’re killing a business, it means we are introducing a different level volume and liquidity that’s all. It will be a very important factor.”
Last year, the Profiles and Listing sub-sector of PropTech collected the biggest chunk of activity, representing 23 per cent of the total deal volume, according to data by FinTech Global. It was followed by Property Investment platforms with a 17 per cent share.
Last month, Reech Corporations Group partnered with Seed Founders to launch a new PropTech venture fund. The vehicle, which has €50m soft cap, will invest across Europe and which have a strategic benefit to its LPs. The firm is being very selective of its investments and has not set an amount it will commit or number of companies it will back, instead it hopes to be a financing partner to each and foster the growth.
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