Decoding PropTech Startups


Technology has reshaped all aspects of our personal and professional life. Alien till very recently, digitization has today got embedded with how we live and work.

As a result any industry looking to grow or even sustain in these tech-focused times must transition into tech or internet based platforms. In fact realizing the opportunity (or may be threat for some), most of the industries are already adopting technology very fast.

Real estate sector, the most customer centric sector is no exception. Proptech is reshaping all aspects of real estate business today.

What is Proptech?

So what is Proptech? Proptech is the acronym of property technology or the technology for the real estate space. It is the adoption of technology in all aspects of property from land planning and property development to delivery of homes and its management.

It involves software, hardware, materials, manufacturing etc. Some examples are property portals facilitating property transactions, hardware such as sensors, materials like special bricks acting like batteries for solar panel, 3D printing etc.

Therefore whether it is customer experience, construction management, marketing, facilitating property transactions or even property management, proptech is fast becoming the game-changer in the real estate industry.

PropTech Startups: Key areas of operation

While you can find tech innovation in almost all areas and phases of property development life cycle, proptech startups can broadly be grouped into four areas i.e. Project Development, Investment and Financing, Brokerage & Leasing and Property Management.

Proptech startups are mostly found in brokerage and leasing space followed by property management, project development and investment and financing. These startups have made each process more efficient, time-effective and economic. The sub-verticals within these major verticals are as follows:

Brokerage & Leasing Property Management Property Development Investment and Financing
  • List & search
  • Brokerless list & search
  • Tech-enabled brokerage
  • Co-working
  • Data & analytics
  • Sales, marketing & CRM
  • Agent matching
  • Tenant management
  • Third-party handymen
  • Drones & clean energy
  • Smart home fixtures & controls
  • Construction / Materials marketplace
  • VR & 3D
  • Architecture & construction tools
  • Design inspiration / services
  • Personal loans
  • Crowdfunding

 

PropTech: Disrupting technology impacting real estate

CBRE in its report titled ‘Proptech in India: Looking Towards 2030’ has identified six disruptive advancements that are impacting the real estate strategies in India. The report reveals how real estate stakeholders – developers, investors, occupiers and employees –are currently being influenced or would be influenced in the future  by these technologies across the life cycle of an office building.

Technology Area of influence
Software-as-a-Service (SaaS) / Cloud Computing
  • Improving pre-construction and construction efficiencies
  • Pre-empting risks to enable better decision-making
  • Predictive property maintenance
  • Portfolio analysis, benchmarking and optimization, etc.
Artificial Intelligence (AI)
  • Automating property management processes
  • Improving valuations’ accuracy
  • Augmenting ESG (Environmental, Social and Governance) management
  • Improving workspace design / management etc.
Internet of Things (IoT)
  • Creating dynamic data sets
  • Portfolio optimization
  • Transforming workplace solutions
  • Enhancing end-user services, etc.
Robotic Process Automation (RPA)
  • Chatbots as personal assistants
  • Enabling investment / location decisions
  • Automating property management processes
  • Improving work environment, etc.
Virtual Reality (VR) / Augmented Reality (AR)
  • Enabling virtual inspection of construction sites / properties
  • Improved construction efficiencies
  • Reduced TAT and informed decision-making
  • Improving employee collaboration, etc.
Blockchain
  • Maintaining efficient records of portfolio history
  • Facilitating and optimizing real estate investments
  • Creating smart contracts
  • Developing an ecosystem of partners etc.

Source: CBRE

PropTech: Outlook

With rapid urbanisation, the emergence of the middle class and millennials, COVID-19 forced internet penetration and rise in digital literacy are few of the factors that make the environment conducive for growth of proptech and proptech startups.

A Housing.com research titled ‘PropTech: The Future of Real Estate in India’ very aptly summarizes the propetch outlook in India, mentioning ‘As we ride this third-wave of the tectonic shift in the real estate value chain, technology penetration and acceptance of digital enablers such as drones, virtual reality, Internet of Things (IoT), big data, artificial intelligence, block chain and software as a service (SAAS) will take center stage in the mostly organic fabric of the Indian real estate sector, and it would not be wrong to say that the next decade belongs to PropTech.’

Performance of REITs in India


 

REITs offer an effective investment strategy for investors looking to earn dividends from commercial property investments without directly owning or financing any commercial property.

REITs or Real Estate Investment Trusts are fast making their way into the Indian real estate sector. They have become a preferred tool for retail investors to earn dividend from commercial property investments without directly owing or financing any commercial property.

Regulated by SEBI and working on the pattern of mutual funds, REITs are investment vehicles that pool together the capital of multiple investors to own, operate or finance income producing commercial real estate.

They manage these properties or assets to generate regular income and for capital appreciation. In order to ensure income generation, SEBI requires that REITs invest 80 percent of the portfolio in completed and income generating properties and only 10 percent in under construction properties. SEBI also requires that 90 percent of the income be distributed as dividend among the investors.

Technically REITs invest in all types of income-generating properties e.g. residential property, office property, malls, warehouses, hotels etc., however the listed REITs in India are primarily focused on office space.

Let’s take a look at the recent development concerning REITs in India.

Listed REITs in India

Since the launch of the first REIT two years ago, India currently has three listed REITs. These are Embassy REIT, Brookfield REIT and Mindspace REIT. All these three REITs are listed and traded on both the BSE and the NSE and together have a portfolio of 87 million sq.ft.

Embassy REIT, co-sponsored by the Blackstone Group and Embassy Group, is India’s first REIT listed in April 2019. This REIT owns and operates 42.4 million sq. ft. of portfolio consisting of infrastructure, office parks, and buildings.

The Brookfield REIT is sponsored by an affiliate of Brookfield Asset Management which is one of the world’s largest alternative asset managers. The company’s portfolio of 4 million sq. ft. consists of campus format office parks.

On the other hand, Mindspace Business Parks REIT is sponsored by the leading property developer K Raheja Corp and global private equity fund manager Blackstone. Its portfolio includes a total leasable area of 30.2 msf consisting of office spaces in major real estate markets such as Mumbai, Pune, Hyderabad, and Chennai.

Performance of REITs

REIT as an asset class has performed better than BSE Sensex, the Realty Index and most of the small, mid and large-cap mutual funds. Embassy Office Parks REIT garnered a 12% increase in its net operating income (NOI) of Rs. 2,032 in FY 2020-21 on YoY basis. Its revenue grew by 10% to Rs. 2360 crore for the same period.

On the other hand Brookfield India REIT registered an increase of approximately 4% in its NOI to around Rs 170 crore for Q2 2021 on a Y-o-Y basis. Its unit holders received dividend of Rs 181.7 crore.

Mindspace business parks REIT achieved an NOI of Rs. 358 crore during H1 2021 on a Y-o-Y basis.

Overall, while the Brookfield India REIT recovered exceptionally during the last six months, the Embassy Office Parks REIT and the Mindspace Business Parks REIT never traded below their issue price despite the COVID-19 pandemic,

REITs Vs. InvITs

Infrastructure Investment Trusts or InvITs are structurally similar to REITs but the difference lies in the fact that while REITs own and operate office space, InvITs operate infrastructure. Infrastructure in this case includes but is not limited to roads, bridges, dams, power grids etc.

There are two publicly-listed InvITs operating in India i.e. India Grid Trust and IRB InvIT. Similar to REITs, performance of InvITs has also remained good. While India Grid Trust fetched a return of 56% for its unit holders during FY 2020-21, IRB InvIT performed even better at 83% for the same period.

Recent Market Development

SEBI has been making quite a few tweaks to REIT regulation since its launch to encourage better investor participation. Recently with an objective to improve liquidity in REITs and attract more listings, SEBI brought down the minimum investment amount in a REIT to Rs. 10,000-15,000 with the revised trading lot at one unit. Earlier, the investment amount was ₹50,000, and the trading lot 200 units in the secondary market. This is a welcome step by the market regulator.

Future Outlook

India has approximately 650 million sq. ft. of Grade A office space, of which 310-320 million sq. ft. is REIT-able stock. The current 3 listed REITs manage a portfolio of 87 million sq. ft. Therefore there is ample potential for more space being added to the existing REITs or the listing of new REITs.

India REITs Outlook

  • Total Grade A office space in India
650 million sq. ft.
  • Total REIT-able stock out of the above
310-320 million sq. ft.
  • Portfolio managed by the currently three listed REITs
87 million sq. ft
  • India’s office stock in next 6-8 years
1 billion sq. ft.
  • Portfolio expected to be listed on Indian Stock exchanges in next 2 years
100 million sq. ft.
Conclusion:  
  • There is ample potential for more space being added to the existing REITs or the listing of new REITs.
  • The asset class presents itself with tremendous opportunity and growth to all class of investors.

Source: Savills & FICCI report on India REIT

On the other hand, despite pandemic, REITs have delivered promising performance and are on growth path. Recent performances of REITs have shown that they have the potential to deliver value for all the stakeholders including investors, sponsors, trustees etc. Therefore, this relatively new asset class presents tremendous opportunity to investors. However despite being innovative REITs may not be suitable for everyone. One must evaluate the risk and return before investing.