The real estate industry despite being completely aware of the benefits proptech poses has not embraced it fully. As a part of the survey, HexGn has identified the top reasons why real estate players, in spite of having a tech adoption plan, are hesitating to take the next steps towards placing orders for proptech solutions. No respondent could settle for a single most important reason for the above, and accounted their hold back to more than 8 reasons on an average. Proptech companies would need to address these aspects in order to increase collaboration and business from real estate players. The below section does not offer any single shot guarantee to success, but a series of feedback that comes directly from the user. It must be noted that although the reasons identified for the slow engagement with proptech are many, the ways to address these may be limited to a few approaches, which are scientific, structured and have been tested by successful startups in other industries.
Uncertainties about the ROI
Close to 90% of the HexGn Global PropTech Time 2019 survey’s responses indicated that clients are shying away from proptech as they were unsure about the returns that the investment would bring. Real Estate companies are unable to understand fully how a particular proptech product and service will help them in the long run. A key reason for this is that the real estate players have not fully analyzed their pain areas to derive the problem statement. PropTech companies must therefore follow a scientific process to define the problem they are aiming to address, and validate such hypotheses with the user or user groups. Users when involved in defining the problem statement, have a clear baseline and structured methodology to asses ROI of any proposed solution.
Fear that Solutions are not Time Tested
Around 77% of the HexGn Global PropTech Time 2019 survey respondents felt that the hesitance to proptech arises from apprehension regarding whether or not the service/ product being offered is time tested. Traditional industries have few early adopters, who are willing to try an innovative but relatively new product or emerging technology. Proptech players therefore cannot find success if they propose solutions that are highly disruptive. Such an effort is time consuming with less or no probability of success. Tech startups will have to move to the market with the minimum viable product, which will introduce the technology in relatively smaller dosages at affordable initial investment for the user. The approach has less development time. Startups receive feedback fast and are able to pivot their offering with minimum investments. Once the traditional industry is used to the technology, they develop an appetite for advanced features of product.
High Cost of Implementation
Cost of implementing technology does not limit to the product purchase value. It also includes other aspects such as infrastructure overhaul and process alterations which may prove to be expensive for the real estate companies. More than 71% of respondents identified this as a concern. There are two steps to address this. First, substantially validating a problem statement and subsequently validating the problem-solution fit, leads to offerings that offer substantial benefits for the user. When the returns calculated are high, the relative cost of implementation is perceived low. Second implementing this solution in small increments, such as starting with a minimum viable product, reduces the initial cash outflow for tech adoption.
Fear of Being the Startup’s Test Case
A lot of real estate companies also do not jump onto the proptech bandwagon easily as they feel they might be the initial free testing grounds for the product. Close to 69% of the HexGn Global PropTech Time 2019 survey respondents feel so. An easy solution to address this is that proptech startups do not charge the users for the services and products for a trial period. However, for the proptech company this requires a substantial investment. Alternatively, proptech startups can join incubators established by large real estate corporates, that not only helps them tap into the domain expertise but also test their product in real life scenarios. A key benefit for the corporates is that it gets access to solutions at a low cost.
Weak Value Propositions by PropTech Companies
Almost a similar percentage of respondents felt that the startups they have interacted with offered weak value propositions which harmed the chances of collaboration. For a user, value may be derived not only from saving money, but also from saving time, by improving processes, helping the business to grow or even making it easier to perform a task. The value of a products does not happen by chance, it is created by a systematic methodology starting with identifying a problem, analyzing its root cause, developing a solution, and establishing the market fit of that solution – all the while hypothesizing and validating the assumptions. Startups must also ensure that their value proposition not only caters to a need, but is also differentiated from alternatives and is substantiated as something that will deliver the results.
Lack of Approval from Senior Management
Real estate companies have often stepped back from partnering with property technology ventures because of disinterest from those in senior roles, and 66% believe that this was another problematic area. To address this, core teams within real estate companies working to implement proptech strategies need to get the CEO/ owners and other senior decision making members on board right from the beginning. By doing this, companies can ensure a trickling effect of positive attitude towards new and emerging tech-driven concepts in real estate. At the same time, proptech ventures must involve senior management of real estate companies in the hypothesis testing process to understand their perspective of the problem, especially from business and people angles. Involvement of everyone in all steps of validating and in a way co-creating the product will ensure that the user groups see the products/ services in a new light and what it can do for the organization in totality.
Failure to Inspire Trust of Survival
Around 66% of the real estate companies also believe that the proptech players may not survive as a company in the long run. This is no doubt a substantiated concern given that less than less than 10% of the proptech players who have raised a seed fund, have been able to raise a Series-A venture round. The focus here needs to move away from raising investments, as successful fund raising is a consequence of being able to create a value product that is sought after by users. When proptech startups are able to display that they have a deep understanding of the problem at hand and that a substantial proportion of the industry are impacted by the problem, they automatically establish a market for their solution. Deep research and testing hypotheses well enough are the key to achieving this. There are several issues that are at core of real estate processes for a long time without any significant solution to effectively tackle them – Proptech companies just need to identify them.
Risk to the User’s Reputation
Unlike many other industries that cater to retail customer with low ticket size products, real estate being a high ticket product takes years of trust building to create a brand. What if the technology fails and brand reputation takes a hit? How can such a risk be mitigated? Almost 64% of the respondents cited this as the concern for not venturing into proptech partnerships. Proptech startups need to take this factor into consideration when they define their value proposition and test the market fit of their product. Incubators by real estate firms play a key role here in guiding startups to understand this risk factor.
High Downtime and Long Time to Train Users
According to the HexGn Global PropTech Time 2019 survey, about 59% of the survey respondents said that the high downtime and long time to train their workforces to use any new technology is an important obstacle to proptech adoption. The real estate industry is at an early stage in adopting technology and such obstacles are not unheard of – other industries faced similar issues during the initial days of tech infusion. While it becomes pertinent for real estate companies to organize programs that help their existing workforce upskill themselves, proptech companies can collaborate with the users in this effort. This not only helps ready the market for new products, but also helps proptech companies to understand the user better.
Proptech Founders do not Understand the Industry
According to the HexGn Global PropTech Time 2019 survey, around 57% of the responses suggested that startups led by founders with no understanding of the industry pose some of the biggest struggles in the industry. Founding teams devoid of experts from the real estate industry will fall short in understanding the strengths and pain points of the industry. Getting real estate experts on board is an indispensable effort that founders need to make as no amount of business acumen can help the venture take off successfully without the involvement of those who possess the technical expertise of the domain. However, startup companies may not be able to offer suitable compensation for such expertise. PropTech incubators again come to the rescue. Such incubators, especially those established by real estate corporates, helps startup companies to tap into the domain expertise at low cost and little effort.
Clients Willing to Live with the Issue
A lot of times clients are unwilling to even consider novel solutions simply because they have found ways to run their business despite certain issues. In some cases, business owners are not even aware that a particular issue exists as overtime it becomes a part that seems inevitable and unsolvable. Complex solutions with a large set of features often seem costly with very less ROI. Instead it is easier to pursue a prospective client to implement a minimum viable product (mvp) and see the benefits. Such versions of products can be offered at a low cost. MVP’s have not only helped startups to find their entry point into the market, they have also helped prospective customers realize the magnitude of the problem they are living with.
Lack of Scalability Features
The adoption of property technology is often characterized with activities like training workforces, putting the right digital infrastructure in place, and spending considerable amounts on all of it. With so much happening around the adoption of technology, all the efforts may come across as unnecessary or even futile if the solution is only suiting to a small part of running the business. 53% of the respondents felt that the inability of a proptech service or product to scale across the organization can reduce the proptech adoption rates. Proptech players must avoid developing a solution and trying to fit it into a problem. Instead they need to develop an end- to-end understanding the business process and then determine the scope of the problem. They also need to establish what happens upstream and downstream of the process boundaries, and to what level such stages are tech enabled.
Combing through the Noise
One notable feature of the proptech segment is the continuous emergence of trailblazing startups within it and the wide spectrum of choices they create for the real estate industry players. This can be both a boon and bane. The risk appetite of the real estate industry for proptech solution is still low and those involved in searching for proptech partners spend a lot of time and effort to identify the right partners. 46% of the answers from the survey indicated that choosing from the many options available turned out to be key area of struggle. The proptech industry must collaborate with the real estate industry at the early stages to evaluate and recognize their needs. This is likely to ensure that value creating solutions stand out and are known by the user groups are aware of them.
In-house Technology Solutions
Proptech companies find a lot of resistance when approaching real estate companies that already have some or the other technology- based solutions in place. In such cases, proptech startups should aim at finding ways to present their solutions as complimentary to the existing ones. Another way to go around it is to present the product/ service as a more evolved solution. It was gathered that 46% of those surveyed felt that the existence of in-house property technology solutions was a hindering factor.
Bad Experience with Proptech Players
Bitter experiences dealing with other proptech startups often sets an unfavorable benchmark for the rest of the fraternity, especially when it is a real estate company’s first encounter with a proptech player. Proptech players need to help their potential clients get over this apprehension by understanding the cause of that bad experience. Further, startups also need to convince such companies that negative experiences can be avoided. For this proptech players will need to arm themselves with a plan that is laid out well and touches all the concerns of the real estate company. Startups in proptech world need to ensure that they conduct themselves in a way that does not degrade the reputation of the segment as a whole.
Proptech entrepreneurs will need to ensure that the product value and business model is sustainable to ensure that those coming on board are not disappointed. It is not just the startups in a given ecosystem that hold the onus for this but also other players like investors, incubators, and accelerators. These entities can play an important role in guiding and preparing these startups for a successful flight in the proptech world. These supporting agents in an ecosystem also help startups in addressing another predicament – offering products and solutions that may not be time- tested. Proptech players should take utmost care in refining their product to ensure that they can sustain their business in the longer run. This is beneficial for striking important partnerships for revenues to keep the startups running and for keeping the real estate industry from losing its faith in proptech. The observation based on the survey responses also pointed out that the concerns regarding the adoption of proptech were changing. Fears of losing out on jobs by embracing technology was the least concerning issue. It was one of the first challenges, the industry faced in its nascence but seems to bother only the smallest portion of our respondents. The concerns that plague real estate industry currently revolve around the performance of the proptech service or product offered. Solving these challenges can drive startups towards increased collaboration between real estate and proptech and also help startups in improving their value offering.
Reduction in Existing Manpower
While the industry will have to deal with changes in job roles, the current real estate players are thinking more about how to train the existing employees on new age technology and thus upskilling for the future. Nevertheless, there is a fear of job loss among current employees. While technology will be a game changer for the industry, it is necessary to understand that the domain knowledge of the sector will still be needed for many years to come. The real estate industry should thus continue its focus on bridging the skill gap for handling the future job roles in the industry.