Fintech Trends: Real Estate

By Aleksandra Kireeva | August 11th, 2016
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  • For many, buying an apartment or even a house is still one of the biggest investments in their lifetime. During the fairly recent crisis real estate investment decisions have been put to a serious test. The European market is currently experiencing strong demand across different asset classes while simultaneously suffering from a limited supply of suitable assets. As a result, developers are not only applying a different approach towards new projects, but have also shifted towards anticipating and adapting to the rapidly changing demands [1]. Despite the clear challenges for investors, the real estate market is still considered as more attractive than bonds. In addition to the cyclical market pressures, however, further challenges lie ahead.

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    Technology promoting market competition.

    Current data shows that substantial investment is flowing into the real estate market [2]. The capital flows are not only directed at the various investment opportunities though, but also target new, innovative technology companies, aiming to increase the transparency of developers operations and allocation of funds. A long tradition combined with current real estate trends, especially in developed countries, has resulted in the accumulation of a rich array of data by the real estate investment sector. However, it stays un(der)utilized, as the tools used by industry professionals are still seemingly limited to large Excel spreadsheets and other dated platforms that failed to catch up with the combination of processing power and speed needed to process large sets of data. Any more complex request, if viable at all, involves extensive manual work as the existing setup is unfit to deal with it [3].

    Young companies developing data analysis solutions can thus deliver real value, allowing real estate investors insight into their data they were previously not aware of. In addition to the data analysis technology, investors can benefit from investment platforms such as FinLeap’s venture zinsbaustein.de, which connects individual and institutional investors with property developers. The platform approach opens a further source of financial capital for real estate developers, and a new investment class for many investors, thus improving cost transparency and connecting participants across different market areas. On one hand such platforms allow investors to rapidly build a diversified portfolio. On the other hand, developers benefit from a further, and potentially more liquid, source of funding enabling them to further optimize their capital structure.

    Diversifying professional teams.

    In order to accommodate the evolving industry practices, the internal structure of real estate firms has to change accordingly [4]. The most obvious addition is a team of tech specialists or the formation of strategic cooperations – as in the case of zinsbaustein.de, where an established real estate player decided to team up with a leading Fintech incubator. With the ability to establish a new technical infrastructure and a technology- and data-focused mindset, they can develop novel internal or client-facing platforms and apps to accommodate the growing need for transparency and flexibility. In order to make sense of the piles of data enabling the technology in the first place, a business intelligence department could be useful.

    The demand for a new type of skill set is not limited to tech specialists. The increasing variety of alternative financing options and sources available to developers, including accepting individual and institutional investor’s funds through crowdfunding platforms as mentioned above, may also lead to hiring more professionals familiar with the innovative methods of structuring financial assets.

    Second-tier cities taking the lead.

    The rapid pace of evolution in technology and a younger, more connected, generation make location less and less important. As a result, the advantages of “tier 2” cities over the large 24-hour cities such as New York and London are being rediscovered. This is also due to the fact that investors are still able to realize attractive yields in such locations, while real estate prices in prime areas have led to a significant yield compression, rendering them increasingly less attractive to buyers.

    Generation Y and Z represent the most technologically interested demographic group. Their surge is sharply shifting the focus of the real estate market. The new demand for flexible and convertible solutions is forcing interactions within the industry to change [5].

    The same people who are driving up the demand in alternative real estate properties are also responsible for the growth of the startup sector. Consequently, real estate investors are gaining interest in open-spaces and industrial properties that can be converted into the modern vision of an open-plan ‘startup’ office space [6]. In addition mobility of employees is sharply increasing, bringing globalization to a new level. The first co-living membership opportunities have emerged, providing living opportunities in multiple cities worldwide. Members can switch between the apartments at will.

    As with every other industry that has faced the wave of digitalization in the past years, the existing players in the real estate industry are cautiously embracing its inherent opportunities. The key difference, however, is that many industry leaders have already started adapting their business models, while young startups often try to assist the evolution rather than force the disruption. In many cases, both sides benefit from joining forces in order to lead the next wave of innovation within the real estate industry.

    References:

    [1] Emerging Trends in Real Estate Europe 2016

    [2] Emerging Trends in Real Estate: The Outlook for 2016

    [3] 5 Real Estate Investment Trends You Need to Know in 2016

    [4] Four trends that are reshaping the commercial real estate industry

    [5] Global Real Estate Trends in 2016

    [6] The Top 10 Emerging Trends Shaping Real Estate in 2016

    Aleksandra Kireeva