– Rising borrowing costs and global economic uncertainty weigh on sector
– Property technology (proptech) can unlock market efficiencies
– Proptech start-ups in emerging markets continue to attract investment
– Successful proptech companies are looking to expand regionally
Emerging markets are increasingly harnessing data and software to disrupt and streamline their real estate markets and meet the needs of young people and businesses.
Property technology (proptech) consists of a suite of technologies that make commercial transactions around residential, office and retail properties more equitable and seamless. Operating at the intersection of financial technology, construction tech (contech), smart real estate and the sharing economy, proptech ranges from investment platforms for pairing retail investors with real estate assets, to property-management platforms.
Last month Nigerian proptech startup Spleet announced that it had received $2.6m in seed funding, including from Los Angeles-based venture capital firm MaC Venture Capital, to expand its business.
It offers a variety of payment options to its primary customer base of middle- to higher-income renters in Lagos, including what is known as “rent now, pay later” – a structure similar to the “buy now, pay later” option that is expanding financial inclusion in emerging markets.
Spleet has processed more than $3.5m in rent since its inception in 2018 but also has over 68,000 unfulfilled requests, suggesting further room to scale. In July it became the first African start-up to join the MetaProp NYC real estate technology accelerator at Columbia University.
A global market
Against the backdrop of global macroeconomic headwinds, rising US interest rates and volatile global real estate prices, proptech has the capacity to bring more predictability to property markets and connect landlords and renters through seamless transactions.
While Airbnb was an early proptech industry pioneer, but there are now more than 9000 proptech companies around the world that are continuously adapting their services and models to address growing urban populations and the shifting demands of the global real estate market.
The US market for proptech is forecast to grow by 16% per year to reach $86.5bn by 2032, according to consulting firm Future Market Insights Global, which expects a 23.7% growth rate for China and 26.5% for Japan.
In the first quarter of 2022 venture capital funding for proptech reached a record $4.4bn, a 41% increase from the fourth quarter of 2021 and a 31% increase from the first quarter of 2021, according to a report by investment bank Keefe, Bruyette & Woods.
However, rising interest rates are dampening confidence in proptech investments in many developed countries, as home and apartment prices continue to decline from their post-pandemic highs in 2021 and the first six months of 2022.
New York-based venture capital firm MetaProp produces mid-year indices that track confidence in global proptech investments and start-ups. Its 2021 global index stood at 9.3 out of 10 but fell to 5.8 in 2022, while its start-up index moderated from 8.3 to 4.2.
Open playing field in emerging markets
While this represents something of a market correction for developed countries that have been deploying proptech for years, the situation in emerging markets is different, largely due to the surge in people moving to cities and the resulting demand for housing.
In 2000 roughly 15% of the global population lived in cities, but this figure rose to 50%, or 4.4bn people, in 2021 and is expected to rise to 66%, or 7.7bn people, by 2050, according to forecasts from the International Finance Corporation (IFC).
With direct government housing subsidies unavailable in most emerging markets, the IFC estimates that as many as 1.6bn people will have difficulty finding housing by 2025.
Pakistan is identified as a thriving space for proptech given its large, young population – with a median age of 23 – that is looking to move into crowded cities, causing housing demand to outpace supply.
Karachi-based MyGhar, for instance, provides furnished private and shared rooms with all-inclusive billing, while DAO Proptech is using its platform to provide different ownership options and raise interest-free capital for developers.
Given the growth potential in markets with similar demographic trends, proptech start-ups in emerging markets have seen significant recent investment, not least because a relatively small amount of seed money can go a long way in building platforms and harnessing data.
Downside risk and innovative potential
At the same time, however, real estate markets are complex and typically governed by their own legal idiosyncrasies – not to mention different cultural values across countries. In addition, real estate deals are often private and unreported, limiting the potential of any data-driven analysis and pushing the market towards a more traditional broker model.
The best example of a failed proptech start-up in emerging markets is Vietnam’s Propzy. Having raised $25m in 2020 with ambitions to expand to Malaysia, the Philippines and Thailand, financial difficulties and an inability to raise further funds prompted it to announce last month that it was winding down its operations.
The merging of proptech with contech, however, may help the segment weather global economic headwinds.
This approach has been taken by Tel Aviv- and New York-based venture capital fund Built Up Ventures, whose flagship start-up My Tower manages over 250 residential towers in Israel and has also entered the market in Poland.
My Tower’s innovations on the contech side include using autonomous robots, advanced computer vision, laser detectors, geopositioning and inertial motion sensors to reduce operational costs by as much as 50%.
New market entry and regional expansion
Some proptech companies are pursuing regional expansion strategies to take advantage of common legal, financial and social frameworks for real estate.
Proptech companies are enabling the current real estate boom in Colombia, where supply is rapidly increasing but remains short of demand. La Haus and Habi, two Colombia companies, recently raised $158m and $100m, respectively, part of which they plan to use to expand into other markets in Latin America, starting with Mexico.
La Haus has operated in four Mexican cities since 2019, and Habi bought two Mexican real estate companies in January.
Proptech platforms are also enabling foreign investors to enter new markets. Proptech company Naya Homes, which specialises in vacation and short-term rental management in Mexico, raised $5m in funding two weeks ago.
Meanwhile, in the Middle East, Dubai-based proptech start-up Stella Stays announced last week that it is partnering with Cairo-based real estate company Tameer to enter the Egyptian market.
The companies plan to build new properties, starting with a community of ready-to-live apartments in New Cairo. Stella Stays has operations in the UAE, Saudi Arabia, Turkey, Bahrain and Canada.
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