The term “PropTech” is formed by the fusion of two English vocabularies “property” and “technology”; fundamentally, it refers to a new business model that sees technologies and digital applications in real estate. But what exactly does PropTech consist of? What will its impact be on real estate? What legal questions arise in the context of real estate contracts?
What is PropTech
We are in the era of automation, blockchain, and augmented virtual reality; digital innovation can only affect how we rent, buy, evaluate, and construct real estate.
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PropTech started to gain attention a few years ago when the first startups specializing in this field emerged in America. However, defining PropTech as merely the application of technological tools to the real estate sector can be reductive. PropTech, in fact, should be considered a new philosophy, a different way of understanding the traditional real estate market in reference to the relationships between stakeholders, builders, intermediaries, and consumers, and its object, namely the buildings and more generally the cities, which are driven by the constantly evolving digital landscape.
However, this is still a trend in its embryonic phase, especially in our country, but certainly destined to evolve and extend its tentacles.
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PropTech and smart city
PropTech also embraces other areas close to it, in addition to the real estate market itself; the concept of PropTech includes smart cities and buildings, the sharing economy applied to living spaces, the residential construction industry (ConTech), finance, and retail. The PropTech model can also include coworking that reforms the office space sector, co-living that offers new environments to the residential market, crowdfunding related to new constructions and real estate investments, and home-sharing, which is most popular for short-term or transitional leases.
Many new professions are emerging with PropTech, drawing on and sometimes disrupting traditional real estate jobs; think of drone pilots mapping territory from above, engineers with a bit of construction and a bit of computing, who manage to allow consumers to visit a property virtually even before its construction has begun, data aggregators for real estate market analysis and mapping construction zones, and software developers of AI applied to IoT.
These dynamics encourage entrepreneurs and innovators to reflect on various aspects of real estate that have been previously overlooked and to create startups that address specific needs. Indeed, real estate has remained one of the least flexible sectors that rejected digitization and technological innovation in many ways, particularly regarding property transfer rights and enjoyment of the property, most often still managed in a traditional manner, that is, with the intervention of real estate agencies and public notaries. Just a few years ago, in fact, the intervention of the Internet and technologies in the real estate sector was limited to publishing the advertisement for the sale or rental of the property, while the actual negotiation and finalization of the agreement was managed face-to-face between interested parties; today, however, technology has completely retained individuals, to the point that a lease can start and end on the Internet, without the negotiating parties ever having met, and it will not be long before investing estimates and sales of a property still under construction, whose 3D project can be virtually previewed from a distance.
How PropTech technology works applied to real estate
Currently, the number of innovative startups (also known as iBuyers) operating in real estate is increasing, and often it is precisely these startups that, after a successful foundation, acquire apartments online, villas, luxury homes, vintage residences for sale, and more generally properties from owners, at a price established by an algorithm that evaluates the property based on certain parameters, such as size, location, features, and specific requirements of the property, the presence or absence of relevance, year of construction, etc.
If necessary, the startup will involve a specialized team that performs renovations and repairs, often in a smart key, completely renovating the property and putting it back on the market; thanks to the use of cameras connected remotely, the potential buyer is allowed to visit the property’s spaces; thus, the property gains value, and its sale is facilitated by the online publication of the advertisement, which often targets an international audience.
The same mechanism in other startups is used for property rental, often of a short or transitional nature. The algorithm, in such circumstances, is used to allow the owner to evaluate how much the rental of the property can yield; in this case, the startup, as well as redesigning the property’s spaces to make it appealing on the market, and possibly intervening with specialized third parties in renovation and interior furnishing, can also act as an intermediary in concluding the lease between the owner and the tenant, while managing the phases following the signing of the contract, such as rent collection, always strictly through tracked digital payments.
In other startups, like Matterport, on the other hand, design is the core factor of the business; these are companies that, behind a subscription, allow, by connecting a compatible camera to activate, a 3D reconstruction process of any space captured by the camera, enabling the creation, customization, and publication of an extremely accurate three-dimensional digital duplication of a room, floor, building, or garden; the project can be shared or placed on its own website or application. In other startups, engineers, architects, designers, and software developers collaborate to allow those interested in designing their own home, shop, or building to receive quotes remotely: by launching a competition and setting a budget, the concerned individual can obtain the complete project of their future home with attached documents related to electricity, plumbing, sanitation, up to finishes and interior furnishing. There are also startups in the PropTech sector that provide chatbots offering support to tenants 24/7, while others group all the specialized technicians involved in creating a smart home, shop, or even a shopping mall.
From PropTech to ConTech
But PropTech does not stop there; another area of digitization in real estate is certainly that of new construction (ConTech); indeed, construction companies are not immune to the entry of PropTech and will also need to revise their logistical format in a technological key. Very soon, Big Data will be widely used, even in the public sector, to map building land; blockchain technology will be used to simplify sales processes, to develop 3D models of houses and buildings, and virtual reality to offer guided tours aimed at selling properties to be built online.
Technology can give a new impetus to real estate. More and more new players are entering the market, offering innovative tools and solutions to real estate professionals.
PropTech should therefore be understood as a diversified and multidisciplinary mechanism that innovates the traditional real estate sector.
What are the advantages of digital transformation in the real estate sector
It is understood how, in a similar scenario, the real estate sector, which has gone through a violent crisis phase for some time, is becoming an attractive business for investors at a global level. The money invested in real estate, in fact, allows for the rapid introduction of new services to the market, erasing old barriers in the movement of real estate.
From the use of blockchain in the context of transactions for the movement of a property, to tour services through virtual and augmented reality, to the use of 3D technology specific to real estate, to digital brokers.
That PropTech is a sector destined to grow is demonstrated by the fact that many venture capital funds have been specifically created dedicated to this business model, in which many banking institutions invest.
PropTech, what advantages for the real estate market
But what are the advantages of digitizing real estate? Certainly, an increase in transactions related to the sale and rental of properties at an international level, particularly those of high quality and therefore difficult to alienate. Blockchain applied to real estate, for example, adds liquidity to this market, allowing for the simplification of the process of buying or selling a property; with blockchain, for example, it is possible for more people, often far from each other, to buy a share of the same real estate value, investing in the same or sharing the property even from a distance, bypassing intermediaries.
Another advantage is the modernization of maps; artificial intelligence is capable of rapid and advanced surveying of vast territories. The geolocation of a property allows assigning the same value in relation to its position, easily identifying criteria to accurately estimate the property for its future disposal and evaluate points of interest based on its characteristics. This allows the real estate sector to analyze the location of a property in time and those interested in benefiting from properties more specifically and targeted.
Big data applied to real estate, on the other hand, allows for profiling the consumer, better analyzing their habits and tastes, enabling real estate companies to make the best decisions and adopt winning strategies to provide the best response that meets consumer expectations.
Without considering the application of technology to the retail industry, think of smart and interconnected spatial constructions fully modeled for retail.
PropTech, what legal implications
As in all other areas, the application of technology to real estate does not open up a few legal questions.
<pThus, for example, in the use of virtual reality applied to real estate and 3D printing, one of the questions raised is related to the ownership underlying the software and databases (given that much of the code used is open source), the sharing of information collected through these software and their safe deletion, while in the context of the use of IoT, particularly at the residential level, with the use of smart objects in homes that detect early failures, the automatic updating of software for interconnected objects and their remote control, the main issue is certainly related to the potential increase in cyberattacks and thus the risk of data loss and loss of privacy.
Ensuring people’s privacy and high standards of cybersecurity will certainly be challenges that the real estate sector will have to face soon. In this sense, the same companies that develop such systems should not only equip themselves with certifications, insurances, and policies that allow them to intervene quickly in case of data breaches but also commit themselves to raising consumer awareness of the risks associated with these systems by teaching the good practices they should adopt to reduce the risks of unauthorized access to their intimate data. The watchword that must accompany operators in this sense is first the transparency of their actions, which must translate into clear and strict contractual clauses, especially in a period still devoid of specific standards.
PropTech, the protection of personal data
The same question applies to the collection of data related to people’s habits and their use; it is essential that the development of software respects the principles of privacy by design and by default and, more generally, complies with the regulations on the processing of personal data.
While waiting for government regulations detailing the application of technology to real estate, particular attention must be paid to agreements between different interested professional operators, and before agreements, interested parties must carry out due diligence.
PropTech, therefore, aims to radically change the face of all actors operating in real estate, provided they understand the technological potential and exploit the opportunities that this new trend creates, not forgetting transparency in operations, the rights of interested parties, the correct processing of personal information, privacy, and above all, human freedom, which, precisely in these real estate spaces subject to innovation, operates on a daily basis.
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