The Brainiest Professor In Real Estate Wrote A 95-Page Paper On PropTech And We Read It All So You Don’t Have To

“There is an oversupply of activity in real estate FinTech, an excess of optimism in shared economy real estate, but a real need for smart buildings.”

That is the conclusion of professor Andy Baum of Oxford University’s Saïd Business School in an incredible 95-page research paper published last month: PropTech 3.0: the future of real estate.

Baum has a reputation as a real estate sage, and set up the real estate course at Oxford.

His report looks at how PropTech has evolved, the current landscape and where things will progress from here. To hugely simplify, he splits PropTech into three camps: smart real estate, the shared economy and real estate FinTech.

Here are a few of his often very funny observations and how he views the three main areas of PropTech.

1. Expect more failures than unicorns

PropTech is not a one-way bet and money will be lost before the sector evolves, Baum said.

“No doubt many PropTech firms will fail and a lot of money will be lost,” he said. “But there will be some very successful survivors who will in time have a radical impact on what has been a slow-moving, conservative industry.”

He highlights the generational divide this throws up — millennials with the ideas but baby boomers with the capital to fund them. This plays into the wider perspective in the industry of PropTech.

“From one side, we heard that none of these startups know what they are doing and that young entrepreneurs misguidedly regard real estate as a sure thing. From the other, we heard that real estate people are not good at strategy and are determined to protect inefficient fee-earning practices.”

2. The need for more investment in smart real estate

Smart real estate, smart cities and smart buildings describe technology-based platforms that facilitate the operation of real estate assets. And the strategy is underrepresented in the PropTech universe, Baum argued.

“It should be recognised that the smart building sector is the least challenged PropTech segment — the demand is clear, the market huge, the technology increasingly available, and vested interests aligned,” he said.

This is a natural growth area for PropTech, with the construction technology sector also playing a vital role, and requires much more focus by real estate professionals, he said.

3. The sharing economy is important, but there is too much optimism and it will not change the world

“In this report we are not short of examples — we refer to 35 real estate shared economy ventures. Is this an irreversible revolution?” Baum asks. “If so, will the discovery and utilisation of huge volumes of previously hidden space create a supply tsunami that will kill any growth in rents for the traditional owner?”

The answer, in short, is no. There is a limit to the idealism of collaborative consumption and the shared access economy, Baum argues.

Baum said the net impact of the sharing economy on the world's consumers and economy is expected to be overwhelmingly positive. But the overall size of the sector for things such as co-living and co-working have natural limits.

“The millennial generation for whom Uber, Airbnb and the shared use of space are natural may be youthful idealists who will mutate into conservative property-owning and non-sharing parents,” he argues.

He believes asset-lite operators will soon want the stable returns of owning real estate alongside the more volatile returns associated with operating business — something that is already happening with companies like WeWork.

4. Real estate FinTech — a potential bubble?

Real estate FinTech is the area where Baum exhibits by far the most caution. It accounts for around half of all PropTech VC investment, but Baum believes there is not an obvious need for a lot of the technology being created.

One of his interviewees said: “There is too much of a get-rich-quick goldrush mentality among innovators — and some very poor propositions.”

Baum thinks services providing data, such as searchable land registries, will become part of the real estate landscape. But the main area of doubt is the potential for the transactional segment, populated largely by crowdfunding/distribution and secondary market platforms, to make a real impact.

“It is not obvious that technology has changed the nature of the required solution: a heterogeneous offering, through an efficient platform, and a large pool of qualified buyers,” he said.

And while the large traditional brokerage model should be ripe for disruption, Baum predicts that big brokers will instead buy up the best technology and companies that threaten their dominance.

Meanwhile, blockchain has a very long way to go before it will penetrate the mainstream of legal real estate transactions.

One tantalising prospect he raises: With its reams of data and excess of cash, could Facebook become a mortgage lender?