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Proptech: Re-writing the real estate rulebook
Global Banking & Finance Review®
Company
By Jatin Ondhia, co-founder and CEO of Shojin Property Partners
It’s no surprise the super-wealthy love property investment: it’s often very lucrative. But for most, the option simply isn’t on the table.
Even the prospect of owning your own home feels unattainable to many – let alone having spare cash to invest in other properties. But while buying property is often out of reach due to the need for a big, upfront cash deposit, this doesn’t have to apply to investing. Your pound is as good as anyone’s.
Here, I’ll explain how proptech and the digitalisation of the real estate industry can help transform the way we interact with property markets – and re-write the real estate rulebook to benefit all.
How the status quo fails the majority
Most people have a very understandable desire to own where they live. Long-term, paying down a mortgage makes much more financial sense than paying rent. But we all know getting onto the property ladder is tough. Years of rising house prices mean deposit requirements are sky-high, and those who aren’t fortunate enough to inherit cash must scrimp and save.
As a result, people rent or stay with family for longer. For some time, the only respite was that – once you got on it – moving up the ladder was (relatively) straightforward. No longer.
Research from UK bank Halifax has found that value gaps – the extra cash you have to raise in order to jump up to the next rung, for instance from a flat to a semi-detached house – have expanded across the board. To explain this, the bank lists a confluence of factors from the pandemic to Brexit to inflation and supply chain issues. The bottom line: the housing ladder now looks more like a set of circus trapeze bars.
The situation is no better for part-time landlords. Buy-to-let used to be an accessible way for the middle class to put savings in a tangible asset and make their money work harder, and was heavily pushed in the 1990s by successive governments. Today, it’s a shadow of its former self. A flood of tax and regulatory changes in recent years have made it too costly and too risky for most part-timers – leaving it to big-time letting agents and property magnates.
The root causes of these issues are complex and can only be fixed by Government policymakers. But there is some good news. We can use technology and innovative finance to ensure more people benefit from the property markets.
Unlocking property investment for the masses
In my view, we don’t have to subscribe to a status quo dominated by banks and the super-wealthy. It’s possible for all of us to have a piece of the pie, but there are two major blockers.
One is the layer of bureaucracy. Those who want to invest in property development must jump through a litany of legal hoops and certifications that are simply too costly or complicated for most to acquire.
But as has already happened in so many other industries, we can use pre-certified digital platforms to ‘cut out the middleman’. Where digital platforms take on the burden of assessing and validating investments as well as meeting regulatory requirements, investors can sit back comfortably in the knowledge that their money is being put to good use. It also means that investors can enjoy more of any profits, as there are fewer fee-taking intermediaries.
By far the biggest issue preventing access to property investment is, of course, the financial barrier to entry. Investing in real estate is often too expensive for most to buy into. But there is a solution: fractional investment, which splits the cost (and later, the benefits) of an asset between individual investors.
In practice, an investment platform can pool funds from a group of investors before investing in a specific property or a development project that would otherwise be unattainable for any single investor.
Why stop at property?
Property isn’t the only area we can apply these lessons to. Fine art, wine, luxury cars, pre-IPOs – today, all are the domain of the super-wealthy. But there’s no good reason for this other than the fact they often have a very high barrier to entry. Fractional investing and digital platforms mean that anyone can invest.
The big question mark is over regulation. Like any blossoming, new industry, we need sensible, informed regulation that protects individuals, businesses, and markets alike. Our sector has emerged relatively quickly, and so regulators lack experience of it – there are simply no career ‘lifers’ in proptech in the same way there are in banking, for example.
The workaround is for regulators to get close to companies. Listen, discuss, and engage with leading industry players – and companies must do the same. Working together, we can build a strong foundation for an industry that’s growing apace – and can make property and other exclusive investments more accessible to all.
A new state of play
There are no two ways about it: the UK is in the throes of a housing crisis and tackling this is a gargantuan challenge. It’s certainly out of reach for a single industry to solve. But what we can do is open a gap in the market: using technology and innovative finance, we can make it easier for more people to benefit.
In the past, most of us simply haven’t been allowed to play the game. Property investment has remained a preserve of the super-rich. Now, we can use technology to re-write the rulebook.
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