How new technology is poised to disrupt property markets
Date published: 2020-12-04 — by Fraxtor
Up to now, the introduction of technology in the property markets has been largely confined to improving existing processes. Online estate agents, for example, make buying and selling more efficient, but do not fundamentally alter the way it happens.
But this is changing as a new wave of technology is poised to deliver profound shifts in the way the property market works, dismantling existing processes and creating new ones.
Real estate has a number of problems: it is difficult to buy and sell; it is expensive to own; and it is difficult to research. Technological development has focused on these three problems and is now coming up with possible long-term solutions, each in their own way disruptive to traditional practices and models.
Blockchain in the property market
While crypto-currencies are regularly in the headlines, both positive and negative, for the property market it is the underlying technology – blockchain, also known as distributed ledger technology – that promises to have greater impact.
Blockchain records ownership of an asset, but instead of the information being held by public bodies or institutions, it is retained by a network of users, providing a shared public record of changes in ownership. The database is run according to the rules of the network.
Blockchain was initially devised to record and prove the ownership of digital currencies, but it has applications in the property market. Industry stakeholders around the world are exploring how it could bring greater efficiency to property transactions.
In the UK, blockchain technology could be integrated into the Land Registry to enable the instant and secure transfer of property ownership. It could be used to create trigger points, to release funds or exchange contracts when a payment is received or a document signed.
These innovations promise to make the property sale and purchase process easier, faster, and potentially more secure. So-called smart contracts would enable the execution of credible transactions without intermediation by third parties, speeding up the transaction by conducting it entirely online and completing elements of the process in real time.
Many chains of inter-dependent property transactions fall through, resulting in the collapse of a long line of sales, simply because the process takes too long. By speeding it up, blockchain could reduce the vulnerability of these interlinked transactions.
Crowdfunding to facilitate property market access
Property crowdfunding is a relatively new development facilitated by the growth in online platforms that enable multiple investors to acquire stakes in a property asset.
A group of crowdfunded apartments may be worth a total of £1m, in which each crowdfunder’s ownership is in proportion to the amount they have invested. They receive a share of rental income and benefit from any increase in the value of the property in the same way.
Crowdfunding can be an easier alternative to buy-to-let transactions, avoiding the administrative burden of being a landlord and with a lower entry point. It can also be a way for individuals to gain exposure to the property market if they do not yet have the resources to acquire a property on their own.
It also offers a means of diversification that is not available through ownership of a single asset. Rather than using £100,000 to buy one property, a crowdfunder can use it to invest in 10 different assets, which could cover various types of property, thus spreading their risk.
In addition, at any time, the investor can see complete financial data on their property, and the transaction itself can be conducted in just a few minutes.
Appeal to millennials
However, it does entail the investor ceding some control. They cannot decide who lives in the property, or when it is sold. And while they can sell their stake back to the pool of investors – the ‘crowd’ – there is no guarantee of a ready market, nor of the price they might obtain.
Property crowdfunding has proved popular with millennials, who make up over half of all investors in property by this means, and significantly exceed other age groups: 25% of property crowdfunders are aged between 31 and 45, and just 15% between 46 and 60.
Crowdfunding also offers opportunities for sellers, and has proved a popular way for developers to raise money for projects. As it builds momentum, the technique should improve liquidity in the property market, offering new opportunities to invest at a lower price point.
Other initiatives have been launched in the US to make property more affordable, mostly in the rental market. Star City provides dorms for adults, while Common and HubHaus rent homes for roommates, offering a new route for landlords to find tenants.
Easing the research burden
Various property information and research sites are starting to make the process of buying a property owner considerably easier. Sites such as Realyse are currently focused on professional property buyers, but the trend is likely to spread to a wider range of customers, helping buyers make better-informed decisions.
The average professional property buyer can spend up to half their time reviewing data and trying to understand the direction and characteristics of the market, but the new breed of information and research providers can put this data at a purchaser’s fingertips.
The data available includes average yields for a particular area and price per square foot, as well as information on supply, land ownership and planning applications, plus detailed demographics. The enormous benefit to the user is that the data is standardised, aggregated and accessible through a single platform.
Real estate in the era of big data
Such platforms are bringing the real estate market into the world of big data, in which information is collected from multiple sources and provided in a readily analysable format. In the property sector, this should lead to better understanding of market trends.
Up to now, investors have often been reliant on data provided by banks as well as public bodies, which can be out of date or exclude key details or market segments – for example, only covering homes that are subject to lenders’ mortgages. As a rule, such data sources fail to enable granular analysis of individual markets.
Better, more relevant and more customised data are set to provide valuable decision-making tools for all property investors, by highlighting market trends and increasing transparency. This will ultimately make real estate more like stock market investment, where investors can base their judgement on a well-established, standardised and trusted set of metrics readily available to all market participants.
In these different ways, technology is set to increase access to the market for potential buyers, make transactions quicker and easier, and facilitate both preliminary market research and detailed due diligence on particular properties. Ultimately, this should change the property market too, making it broader, more liquid and more transparent.
Written by Ashley Osborne
Fraxtor is an innovative Real Estate Co-investment Platform. With a small amount of capital, you can invest in any type of property worldwide, with your friends, family and fellow investors.
This article does not constitute legal advice.
The opinions expressed in the column above represent the author’s own.