Scramble to complete property deals shows scope for digital disruption
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In early March, tens of thousands of English homebuyers were still scrambling to complete their purchases before a Covid relief measure on property tax — worth up to £15,000 — expired. It left Rishi Sunak, the UK chancellor of the exchequer, with little choice: his so-called stamp-duty “holiday” would have to be extended.
Originally set to end on March 31, the tax holiday will now be kept in place until the end of June because of the “sheer volume of transactions we’re seeing”, Sunak said. With estate agents, surveyors and lawyers bowing under the weight of activity, many purchases would otherwise not have completed in time.
For advocates of “proptech”, Sunak’s intervention proved a point: property transactions, both commercial and residential, are in desperate need of disruptive digitisation. It could make life easier for everyone: buyers, sellers, tenants and landlords.
Proptech tends to be used as catch-all term, covering everything from the automation of manual administrative tasks in the buying process, to the construction of smart buildings and the rollout of apps to improve life for tenants.
Its champions believe that technology can smooth the buying process by speeding up transactions and improving customer experience. And the coronavirus pandemic has provided an opportunity to test the theory.
The past 12 months have highlighted inefficiencies in old methods and forced consumers into new habits: virtual home viewings and online due diligence, for example, were sometimes the only way to push transactions through. “Pre-pandemic, there was some talk of proptech but definitely not as much as there should have been about driving change and using tech to do things differently,” says Nicholas Kirby, a director at law firm Mishcon de Reya and an expert in proptech law. “That has massively accelerated. [There has been] four to five years worth of change in nine months.”
However, ingrained behaviours remain the biggest barriers to adoption, says Kirby. “It takes time, energy and effort to change: conveyancers are so busy, they don’t have much time to look up. But it is education, too: convincing people that this will help them and their clients.”
Daniel Hegarty, founder and chief executive of Habito, an online mortgage broker and lender, puts forward a simpler explanation for inertia. “Customers just want to buy houses. They will do anything they need to do, crawl through all the paperwork and navigate the jargon. That has given enormous leeway to everyone in the process to be quite lazy.”
He argues that the residential property market “is one of the last big markets that has been untouched by technology in some sense”. Buying or selling a home remains a highly labour intensive process, with a string of professionals and reams of paperwork sat between a prospective buyer and a new home.
“If I buy a property, I instruct the lawyers but only find out what’s going on maybe the day before exchange of contracts. There’s a lack of transparency and a lot of inefficiency from people duplicating effort,” says Kirby.
For a raft of new proptech companies, those inefficiencies are opportunities. “Mortgage technology and the underwriting process needs to get a whole lot better, it is ripe for disruption,” says Roelof Opperman managing director of real estate at Fifth Wall, a leading proptech-focused venture capital fund. “And the sales process, price discovery, viewings, all that needs speeding up.”
Companies that can do this are now in high demand. In 2020, the value of mergers and acquisitions in the proptech sector more than quadrupled year-on-year, to nearly $40bn, according to data from Dealogic.
But Opperman thinks the adoption of technology in property will probably come in three distinct stages.
First, and already under way, is the use of technology to simplify routine tasks in the buying process, such as getting a mortgage.
“A lot of times these companies start because a programmer tries to apply for a mortgage and just thinks: ‘oh my gosh’,” explains Opperman. That was true for Hegarty, who decided to set up online lender Habito after “a comically disastrous” time trying to secure a mortgage on his first home around six years ago.
“We eventually got the house but it was very stressful,” he says. “Mortgages and the housebuying purchase is bizarrely byzantine, and everyone is almost by definition incompetent, because you only do it once. We thought if we brought a customer-centric viewpoint and some technology to it, we could improve things.”
Second in the proptech rollout will be tenant engagement, according to Opperman. A range of apps is already available to help office tenants better navigate their buildings. “In a high-end office area, that’s a must-have now,” says Opperman, who predicts similar services will proliferate in the world of residential property.
Third, technology could ultimately compress the buying process into an experience as straightforward as a purchase from Amazon. “In the residential market, the holy grail we talk about is the ‘one-click close’. You do a virtual tour, you hit that button and it’s done,” Opperman suggests.
However, none of the property experts that the FT polled expects that to happen soon, and the majority of innovation in residential property is currently aimed at improving the existing buying process, rather than reinventing it.
One of the more ambitious projects in this area began in early 2019, when the Land Registry worked with Mishcon de Reya to process a transaction digitally using blockchain. As a distributed database technology, blockchain could increase transparency, speed and security, says Kirby.
Blockchain could bring “extraordinary value” to the real estate industry, says David Fisher, founder of Integra Ledger, which uses the technology to authenticate legal documents and help automate their transfer.
“For commercial real estate — the largest asset class in the world and also one of the most chaotic and manual — there is massive value locked up in documents and contracts,” he points out. “Technology removes administrative costs and errors. Two parties can transact with less friction without requiring huge changes in behaviour.”
Contract handling adds to blockchain’s existing applications, from underpinning cryptocurrencies to authenticating precious stones. But more important than the database aspect is the act of digitising large chunks of the sales process, cutting out paperwork and intermediaries. “The underlying tech is not so important; but [its existence] has forced people to rethink how they do things,” says Kirby.
Even so, change is likely to come gradually in a property sector that has often been slow to adopt new technology.
In a survey conducted last year, global property company JLL asked real estate investors to rank the long-term trends affecting real estate. Top of the list was climate change, followed by the risk of a global recession. Proptech ranked sixth.
“The right here, right now stuff is focused on improving customer experience and efficiency,” admits Kirby. “Wholesale changes [such as using blockchain for residential transactions] are probably more for the future.”