Asia’s mighty proptech potential

Demographics and rapid urbanisation are arguably the two most significant drivers behind Asia’s rapidly advancing proptech market. Asia’s middle class will represent 65% of global consumption or around $38 trillion by 2030 and millennials will make up 50% of the population in Asia by 2020.

These twin drivers are motivating entrepreneurs to find more sustainable solutions for urban planning, from smart energy grids to co-living. There is a rising demand for real estate by technologically-savvy millennials which, together with supportive governments, creates an ideal environment for the smart city concept to flourish. From China to India, Hong Kong, Singapore, Japan, and south east Asia, the region is populated with dozens of fast-growing cities with skylines replete with modern commercial buildings that are well-placed for connectivity, 5G and the internet of things (IoT).

There are also regional idiosyncrasies which support the growth of the Asian proptech market. Asian culture leans towards a collectivist mentality. In Europe and the US, the “sharing economy” requires a mindset shift in sectors like real estate which has long thrived on unequal distribution of information.

By comparison, in Asia thinking in terms of ‘we’ rather as an ‘I’ is intuitive, which supports development of business ecosystems and connecting separate ecosystems together in smart cities. Also unique to the region is the high proportion of buildings built within the last decade, which are more adaptable to technology. These regional idiosyncrasies combine with the structural drivers to make for an highly adaptive environment for proptech to thrive.

Widespread adoption

Add to this the ample availability of venture capital and a picture emerges of a highly dynamic proptech market. JLL, the leading proptech-focussed brokerage firm in Asia, predicts that the total value of investable commercial real estate in Asia Pacific will reach close to $20 trillion by 2020, almost one-third globally. Marketing company CB Insights estimates that venture capital proptech funding in the region could reach $4.5 billion by the same year.

China and India lead because of the sheer size of their markets. In China a large proportion of venture capital has funded development of online residential brokerages, such as China’s Qfang, the country’s largest residential real estate agency. But enterprise technology solutions for business-to-business are also starting to see widespread adoption.

The sheer scale and growth rate in Asia has spurred a wave of start-ups. JLL has identified four verticals around which the Asian proptech market has developed: brokerage and leasing, property management, project development and investment and financing.

“We found that the bulk of funding is in brokerage and leasing,” explains explains George Thomas, chief information officer, at JLL Asia Pacific. “This sub-sector represents the first wave of proptech, which began around 10 years ago.” Proptech firms in this space include Lianjia in China, Proptiger in India and PropertyGuru in Singapore.

Thomas continues: “It’s had a head start on the other verticals, as the original technological model was pretty simple i.e. property listings or aggregator services. However, these are becoming increasingly sophisticated with the development of AI and the vertical will continue to grow alongside trends like coworking and co-living. For example, Zolo, a co-living start-up in India, raised $30m in February.”

Smart cities
Property management, which includes facilities and tenant management, third party handymen and smart home and controls, is the next big engine of growth due to breakthroughs in technology such as the Internet of things (IoT) and sensors. Innovations in this vertical support developments in smart cities, a concept which Asia is well-placed to become a global leader over the coming decade.

Last year, Singapore’s government and industry led the establishment of the ASEAN Smart Cities Network (ASCN), a collaborative platform where cities from the 10 ASEAN member states (AMS) work towards the common goal of smart and sustainable urban development. The enthusiasm for smart cities and sustainability spreads to Hong Kong, Australia and Japan, whose governments also are supportive.

“We’re seeing some fascinating examples of technologies enabling operational efficiency in property management, the use of IoT for space planning and optimization, as well as increasing incidence of adoption of robotics in facility management,” says Thomas.

The concept of smart cities is something which culturally fits in Asia. “One thing Asian people do best, is to see ourselves as working for the greater business ecosystem,” explains Galvin Widjaja, CEO, Lauretta.io, a Singapore-based property automation firm. “Enterprise technology that improves productivity is adopted in Asia with the same fervour as technologies that improve personal well-being. Asia is far more willing to trade privacy for convenience and that allows the people element to be more easily integrated with technology.”

Lauretta.io leverages this trait in its digitalised retail solutions. Widjaja: “Every mall surveillance camera system creates over 500 gigabytes of data per day. We use big data, AI and deep learning algorithms to stitch camera data together – this allows operators to orchestrate security and facilitate maintenance, provide leasing and pricing analytics as well as help retailers maximise their store-front designs to attract shoppers.”

Pioneer
Rising demand for real estate throughout Asia has also focussed innovators’ minds on modernising project development – from design and architectural to construction. Growing Asian development-focused proptech firms are harnessing technologies such as virtual reality (VR), building information modelling (BIM), machine learning and robotics to improve efficiency and safety as well as overcome higher barriers to market entry. One example is Foyr, the Indian VR start-up which provides visualisation tools for developers, landlords, architects and tenants.

“Foyr is a pioneer in 3D visualisation technology born from a basic human tenet that visualisation or seeing is the best way to make a decision,” says Vikas Kaushal, head of strategy and international business at Foyr. “Foyr seeks to empower real estate professionals with tools that can help their customers to visualise a property (office or home) before they make an investment decision.”

Last November, JLL launched a global Centre of Expertise for Technology, Data & Information Management in Bangalore, India. The centre aims to “drive rapid innovation, aiming to set new standards for the commercial real estate industry”, says George Thomas. “This includes experimenting with data and technology design, artificial intelligence, augmented reality, virtual reality and other emerging technologies to help JLL’s clients to make smarter decisions about real estate.”

Digital security
Innovation in investment and financing has been slower in Asia, but as underlying technologies, such as blockchain, tokenisation and crowdsourcing have matured, entrepreneurs have belatedly entered the fray. For example, InvestaCrowd is a Singapore-based investment platform for private equity real estate deals ranging in size between $25m and $100m. InvestaCrowd issues digital security tokens through a process called digital security offering (DSO) which offers owners of real estate assets the ability to raise capital faster, cheaper, and more efficiently.

Julian Kwan, CEO and founder at InvestaCrowd, explains: “Our business focuses on the primary issuance of real estate-backed digital security offerings. Digital security offerings, distributed ledgers and blockchain technology are now used as the shareholding structure for real estate investment. This enables improved transparency for investors, and for asset owners and platforms like ours is more efficient and easier to administer. It also deepens liquidity and supports secondary trading of private equity real estate deals, which offer strong returns and are de-risked to a degree, appealing to a different type of investor.”

Institutional capital
Global corporations are also rapidly expanding their Asian footprint for access to markets like India and China as well as access to tech talent. Greater institutional capital allocated to Asian real estate has spurred increased technology adoption as well as further efficiency push. With rentals peaking in many markets, a greater focus on efficient management of real estate is anticipated which creates opportunities for property management and data analytics platforms. Elsewhere, SoftBank has made some noteworthy investments in the region, including investing $1.5bn in OYO Rooms, the New Delhi-based hotel room aggregator valued last September at $5bn.

But there are also some unique challenges in the region. Asia Pacific varies widely in levels of development, leading to uneven adoption while cyber security for buildings and infrastructure needs improvement. “We also need more tech talent in real estate – people who can make sense of data, analytics, and better integrate technology into the day-to-day operations of the business,” says Thomas.

Perhaps the most striking difference between Asia and Europe’s proptech sectors is in scale: Asia’s population is an estimated 4.5 billion, compared to Europe’s 500 million. Asia’s proptech innovators see this as a strength. As Lauretta.io’s CEO Galvin Widjaja puts it: “The European proptech market needs to learn that quantity is a quality of its own. The rapid scale of implementation creates value at a rate that smaller implementations of better tech cannot.”