First a prediction: New technologies will add another dimension to property transactions, but the central role of the agent won’t be replaced, says venture capitalist Peter Esho of what he thinks the next decade of real estate will bring.
Mr Esho is CEO of Sydney-based private investment firm Esho Ventures, which invests into businesses that may be the next generation in proptech.
Esho Ventures is focusing on investing in properties that have strong utility value for consumers in the real estate space. Having launched earlier this year, EV has seen about a dozen proptech start-ups apply for their program in the last six months.
But not all of them make it.
“The ones we are most interested in are the traditionally more boring areas like commercial real estate, property management and construction technology. We are not interested in disrupting real estate sales, like Purplebricks.
“REA Group and Domain have been quite innovative and capture a certain part of the market. Rockend is very strong in the property management space. Then you have a very fragmented market where lots of people are trying to do different things.”
For a product to be successful in the market it must have strong utility value, Mr Esho says. He explains that no matter how innovative a product, tech cannot replace the utility of good real estate agents who provide essential customer service and empathy during the purchase or sale of a home – a deeply emotional process.
The industry needs to be wary of people jumping on the tech bandwagon without understanding the problem first.
“A lot of start-ups are developing the technology first and solving the problem later. People are jumping on the bandwagon without any experience in the property industry. You need to understand the emotion behind buying and selling property and be able to empathise with buyers and sellers.”
Agents will take on more of an advisory role in the future, Mr Esho predicts, steering clients in the right direction while using technology to streamline menial tasks – leaving agents to focus on their strengths and interacting with clients.
“There’s a huge opportunity for agents and their position is going to become stronger. Good agents have a bright future. The role of an agent will change and a lot of process and tasks will be automated.”
NEW WAYS OF BUYING AND SELLING
With real estate on Australia’s eastern seaboard increasingly out of reach for many, buying pieces of property rather than an entire house is gaining traction as Australians seek fresh ways to enter the market.
A five per cent deposit to get a foot onto the property ladder? It sounds almost too good to be true, but that’s the model Keith Burchill and his team have been working on for six years before bringing their Assquire “Mortgage Alternative” product to the market.
With Mortgage Alternative (MA) the purchaser buys a home with a contract of sale now at a pre agreed fixed price that is locked in today, but with a delayed settlement of up to ten years. The buyer can move in, and during the “settlement period” makes payments which cover deposit instalments, rent, rates, agreed maintenance and building insurance, plus a contribution to a savings account to build equity. They say that excluding the savings component, the monthly payment is similar to a mortgage payment plus property ownership costs.
Essentially, the model extends the settlement period to 10 years rather than the traditional 30 to 60 days.
For the Assquire Investor, who is prepared to sell (on deferred settlement within ten years) they get an accelerated (and higher) cashflow in return for forgoing a share of the capital growth. They say investors can earn around 40% - 60% more with little vacancy risk. And, the buyer shares in some or all of the future capital growth of the property (above 1.5%) to facilitate their end settlement with the investor, using a conventional mortgage, their monthly deposit payments and their embedded equity.
It can be used for new properties, or currently rented properties can be switched over.
“We have the Assquire investor and mortgage alternative on the other side,” Burchill explains. “They are both like flip sides of a coin. The investor is looking for higher yield and the homebuyer is looking to get into a home with lower upfront costs. So it’s a happy marriage.
“Instead of investors competing with first-home buyers at auction, our Assquire investor is incubating them. We’ve lowered the upfront cost for young buyers, which is the biggest barrier to home entry. Self-funded retirees get a stable return and effectively recession-proof their investment.”
Burchill, a former tax lawyer and chartered accountant, has a team of experienced industry players, including former executives from the big banks. The company is focused on the south-east Queensland market and soft-launched in September, with plans to expand nationally.
Predicting Resale Value
Six years after the debut of Realas (which ANZ purchased this week) which was built to accurately predict sale prices, American start-up HouseCanary has gone a step further: It uses data to accurately predict the resale value of a house before it’s bought.
With a system they say can forecast a sale price within 2.5 per cent, the start-up just secured $31 million in series B funding, following a $33 million series A round earlier this year. Investors included Eric Schmidt, the exec chairman of Google Parent company Alphabet.
With a website boasting that it can value and forecast over 100 million properties in 18,000 US residential markets, using a massive data set, predictive analytics and intuitive visualisation tools, CEO Jeremy Sicklick says that well-known names like Kobe Bryant are getting behind his start-up because they believe it will make money for real estate investors.
So far, their customers include Sotheby’s International Realty Blackstone’s Invitation Homes, which operates about 50,000 rental properties, plus others.
“We want to do for residential real estate what Bloomberg did for financial services — build a platform that will be a beacon of accuracy and transparency, enabling greater speed and confidence in residential real estate transactions,” said Sicklick in a statement.
It looks like the San Francisco company is onto something, with plans to expand its 100-person team and invest in research and development. Recently they announced the formal launch of AgileAppraisal, a new property evaluation tool for lenders, investors and rental property operators which allows HouseCanary’s data and market analytics to augment the accuracy and efficiency of their evaluations.
The Google Gorilla
When Google invests $50 million in an online real estate marketplace, it’s time to watch this space.
Ten-X launched in 2008 and allows buyers, sellers and real estate professionals to search, list and transact properties completely online.
Also previously known as Auction.com, Ten-X was valued at US$1.2 billion by the Google-owned equity fund back in April 2014 when it invested into the business. To date, Ten-X claims to have enabled over $50 billion of residential and commercial property sales on its platform.
They already say they’ve facilitated the largest online ecommerce transaction in history based on the Guinness World Records Info; which is the $96 million sale of Manhattan Towers, a two building 309,734 sq ft office property in Southern California.
At present it’s online marketplace is similar other US home listing sites such as Zillow and Redfin. The residential arm has a personal assistant app called XOEY. Yet another in the genre of personal assistant/AI apps like Siri, Xoey is “your personal real estate assistant” and can help you get matched with the right home. Not only does the app find out what’s important to you (larger home, closer to work, a lot of land, newer building) but it also finds you a real estate agent and tells you how much you can afford. Plus you can buy, sell and manage offers all in the one space.
And there is more in the Big Data space in the future for Ten-X. As the company buys Google Search data, they are also getting into the business of predicting future property prices.
In addition to Auction.com, Ten-X owns some other brands including the Ten-X Wallet app and Card which lets customers pay for goods with leading cryptocurrencies (Bitcoin, Ethereum among them).
This month, private equity firm Thomas H. Lee Partners announced the closing of its more than $1B majority acquisition of Ten-X for a controlling stake in the company. CapitalG (formerly Google Capital), among others will continue to hold minority positions in the company.
“This investment gives us the scale and resources to accelerate our growth and further expand our platform and product offerings,” said CEO Mr Tim Morse. “With the support of THL as a partner going forward, we can fully execute on our vision, build on our position as a leader in the online real estate market, and continue to provide our customers innovative products and services.”
We can only imagine what this might be.
Brick by Brick
BrickX is a company that has created a niche by offering prospective buyers access to the property market via the purchase of ‘bricks’.
CEO Anthony Millet says the model lowers the entry barrier for an investment property.
“Residential real estate has, over the last 20 years, been the top performing and largest asset class in Australia, worth over $7 trillion.
“Yet the only way to get investment access is through buying residential property. That comes with many challenges, like acquisition costs, stamp duty, legal fees and more. It is very competitive. Traditionally it is a very illiquid asset that requires you to hold it for the long term without much flexibility.
“Given the attractiveness of the asset class, we thought, ‘How can we make investing in residential real estate more accessible, but at the same time feel fairly tangible?’ That was the genesis with which we developed BrickX and the model.”
BrickX has 14 properties across three capital cities – Sydney, Melbourne and Adelaide – in blue-chip suburbs.
BrickX’s platform divides a residential property into 10,000 units or ‘bricks’ for buyers to share in its growth and expenses. ‘Bricks’ are typically available for $100 at the launch of a new property, but after settlement date the brick price is determined by member supply and demand.
Fractional investing or property crowd funding means the investor owns a share of the property, much like owning units in a managed fund. A ‘brick’ gives the holder a proportional entitlement to any benefits generated from the underlying property after the payment of all costs. There is no minimum holding in ‘bricks’, and an investor is able to list their ‘bricks’ for sale whenever they want.
The platform is not only appealing to a traditional investment crowd. More than half of the 7,000 users BrickX has attracted since launching a year ago are aged under 35.
“Our product is made to appeal to anyone who wants access to investment returns in residential real estate who can’t afford to buy an entire property. That ranges from younger generation and first-home buyers who are entering the property market for the first time,” Mr Millet said.
Seventy-four per cent of BrickX users have never bought residential property before. Buyers over the age of 35 use it as a diversification in a general investing strategy.
Anecdotally, Mr Millet says, many of the younger investors are using BrickX as a way to save for a home deposit in line with the market, allowing them to invest in the asset class without a deposit.
“We are very transparent and keep our fees simple. There is a 1.75 per cent transaction fee whenever you buy or sell bricks. There is no performance fee or hidden costs.
BrickX won the Canstar innovation award in 2017 and has a number of Fintech awards.
Enter your credit card
Market Buy is an online offer management system providing a radical transparency on a multiple offer process. Vendors and buyers can all see how many parties are engaged in an offer process and the price of those offers – think eBay for real estate. The transparency around price is designed to encourage genuine offers and create a level of competition in a private treaty transaction.
As far as this register for properties for private sale is concerned, you simply login, leave your credit card details, and if you wish to make an offer a pre-authorisation of $1000 will be debited.
Marketbuy say they offer agents a better way to co-ordinate private sales with multiple offers, including saving time on meetings, paperwork and collecting deposits.
Eyes on Rentals
Your car is a taxi now, and your apartment is a hotel. Welcome to the new economy.
As Airbnb goes from strength to strength, there are startups cleverly pouncing on other opportunities to develop viable companies.
Recently profiled in the New York Times, Loftium is one of those companies that is ready to help out folks that can’t save for a deposit. They will loan it to you, up to say $50k, provided once you buy your place, you rent at least one room out on Airbnb for a period of three years. The idea coming to founder Yifan Zhang after she and her husband purchased a townhouse where they rented out a bedroom in the apartment on Airbnb, and were surprised to discover how much money they could make off the room, often enough to cover the mortgage.
But there are some conditions: once you take the loan you have to continuously list a room in that home on Airbnb for up to three years and be willing to share the majority of the income that room generates during that time. Not everyone gets $50k, Loftium will only lend you an amount based on what they think the room can generate over a three-year period and you can only mark of eight days per year when you want everyone out.
Roofstock is a two year old online marketplace in California for buyers and sellers of single-family homes that have tenants residing in them. This means that institutional and retail investors can buy and sell without forcing renters to leave during a transaction, and buyers avoid the hassle of finding renters, gaining a property that will likely generate cashflow from the outset.
They have recently raised $35m on top of the original $35-ish they already raised, and say they have sold hundreds of millions of dollars on the platform alone across 15 markets in the US. They say their average days on market is around 30.