Investors understand the role real estate ownership has in long-term wealth creation. But good investment decisions are not possible without good information. High-quality, reliable real estate information is expensive and difficult to get.
Those in the industry know that there are two types of property investors. The have-yachts and the have-nots.
The have-yachts
The have-yachts have access to powerful investment databases that provide precise market data. These databases provide insight into tenant demographics and demand. As well as detailed pricing information about how much properties are selling for at a unit rate. These databases also set out the likely rental income and volume of competition.
They hire armies of analysts to build complex financial models. These forecast net return after-tax and likely return on investment (ROI). Which allows for comparisons to determine where they get the biggest bang for their buck. They buy property at huge discounts to their retail price because they have buying power. Created by the volume of property they buy in a single transaction.
The have-nots
The have-nots rely on vague and misleading property ‘research’ provided by agents and whatever information they can get for free on property portals. They use rudimentary measures such as net and gross yield, which do not account for taxes. Nor the different levels of buying costs and stamp duties. Because they don’t consider property on an after-tax basis, they invest using ‘gut
instinct’ rather than logic.
Also Read: What are the key emerging trends and technologies in proptech space?
The have-nots have no buying power. They fight over the scraps. They get offered property already dismissed by the have-yachts (who could not get a good enough deal, so they moved on).
Proptech will change this.
The have-not reality
Asian investors are in the Australian, New Zealand and UK property markets. But do they get what they bargained for?
Most investors report one of the following:
- They paid too much
- They didn’t account for or appreciate the costs and taxes of investing
- The rent was less than what they had expected
Herded like Lemmings
Investors get herded like lemmings into a pressure cooker sales environment. Forced to make huge investment decisions with limited information. With the threat of missing out unless they act today!
In these high-intensity events, they have no leverage. By the time they walk through the door, they have already lost. Developers and agents have invested big to be there and must recover their costs. These lavish property shows held in five-star hotels are not cheap. Someone needs to pay, and, in the end, it is the buyer.
Property agents focus on specific countries and have access to limited properties. Meaning investors looking offshore must do the leg work themselves. They must determine the costs and benefits of buying in different countries. These are complex decisions and need significant thought.
How can investors harness proptech?
Proptech startups are levelling the playing field for the have-nots. Once elusive data and analysis are now available at the touch of a button. Proptech provides the ability for investors to access this data at a fraction of its cost. By pooling their resources, investors create economies of scale to reduce costs.
Also Read: Indonesian proptech startup Tanaku raises US$5.5M pre-seed capital
New technology has created powerful new analysis tools. These allow investors to undertake a detailed analysis of different properties. All without the need for a small army of analysts to determine what property best meets their needs.
Proptech is bridging the gap between investors and developers
All property developers face the same problem. Property development is speculative and very high risk. The chances of things going wrong are high.
To reduce financial exposure, developers need to pre-sell an element of their development. Generally, in the region of 30 per cent to 50 per cent very early in the development cycle. The have-yachts know this, they demand preferential treatment from developers. They buy property in volume at the early stage of development when the developer’s risk is high. They negotiate large discounts based on the volume of property they buy.
Proptech creates an alternative for developers. Rather than a discounted sale to a have-yacht or the huge financial risk of a sales roadshow. Proptech creates a middle ground where both the developer and small investors benefit.
Proptech can combine investors into a powerful buying group. This group can buy a volume of property large enough to reduce the developer’s financial risk. As well as remove the financial waste of a property roadshow.
The net result is both parties’s win. The developer sells enough property to meet their pre-sale needs. The investors have the buying power of a large investor.
Future trends in proptech
We are currently witnessing a small fraction of what is likely to come. Fintech has revolutionised the financial services industry for the average person. Making financial services safer, cheaper, and faster.
The real estate industry will go through a similar transformation. Owner-occupiers, investors, communities, and developers will all benefit. Innovation will occur in all corners of the property industry ending financial waste. The net result will be lower costs and better outcomes.
For the have-not investors, it will mean better quality and more informed investment decisions. At reduced costs, thereby improving financial performance.
–
Editor’s note: e27 aims to foster thought leadership by publishing views from the community. Share your opinion by submitting an article, video, podcast, or infographic
Join our e27 Telegram group, FB community, or like the e27 Facebook page
Image credit: Canva Pro
This article was first published on February 6, 2023
The post The tale of the have-yachts and the have-nots in the proptech sector appeared first on e27.