Technology is All Set to Democratize Real Estate
Date: Tuesday , September 08, 2015
Founded in 2014, India\'s unique platform, Nobroker is a new home rental platform that makes it easier to find your new home without paying any brokerage.
\"Housing is Issue 1 in the Oval Office, in the corner office, and at the kitchen table\"� Spencer Rascoff, CEO, Zillow.
\"Roti, Kapda aur Makaan\" are the most basic and fundamental needs and amongst these three, the housing need stands apart, primarily because it demands the highest monetary investment. This is true for both buying and renting homes. Technology, Internet and mobile are changing the business dynamics across sectors. The real estate industry in India has undergone various changes and technology has been a critical enabler for the same.
If we go back in time, the discovery was a big issue. There were limited means like referrals that would enable real estate transactions. It was a slow and inefficient process, as a person would have to keep asking in the network for a credible referral source before any transaction could happen and unfortunately, Twitter and Facebook did not exist to spread the word. Thus, it made sense to have a source that can spread the word and the most natural and obvious source was the newspaper classifieds. People starting posting their ads and tenants and buyers would seek information from there. But, this was also a tedious and slow process as you would have to wait for weeks to get something that matches your criteria.
Discovery was made easier by the real estate agents as they became a source of information for multiple properties. They started adding value by enabling visits and most importantly, helping through the bureaucratic paperwork and ensuring that both the parties were genuine (or at least giving an assurance that both are genuine). But, this also meant an additional transaction cost of a middleman.
Over time, this market started becoming competitive and the more entrepreneurial brokers started looking out ways to attract a larger share of clients. They started advertising in newspaper classifieds and on platforms like Just Dial. This was the first time that technology started touching the real estate sector.
It was around this time that people identified the next set of problem which was that as a tenant or a buyer. I do not have enough information and the broker ends up wasting my time by showing properties that do not even match my criteria. That\'s when the first set of real estate portals like 99acres and Magicbricks and online classifieds like OLX and Quikr came to provide not a listing of brokers/builders like Just Dial but rather listing of properties. This enabled people to explore various options and contact the relevant broker or builder. Technology played a crucial role by suddenly collecting all the information and exposing it in an easy way to access format for everyone. New properties and builders were listed separately however; post accessing the information the remaining transaction once again went offline, bringing back the inefficiencies along with the broker.
However, soon people realized that the same gaps and information asymmetry that existed earlier remain to plague the system. These sites did not have enough data for a person to eliminate the property if he did not choose it. They did not have a map view, proper photographs and other such things, and in addition, brokers were added to the gap by either not putting all the information or in some cases, putting wrong information to bait the audience. This led to the next wave in real estate where companies like Housing and Commonfloor removed the information asymmetry. The interface became much cleaner and user-friendly. Thus, with the help of technology, the right information was available to people at their fingertips.
However, despite so much progress in technology, there was still some inefficiency in the system. Unlike a new project where the buyer was now able to connect directly to a builder and thus, there was reduced transaction cost, in case of rentals and resale there was still a middleman involved. This led to a transaction cost as high as 18 percent in rentals and 3-4 percent in resale. In most of the other industries, technology has been able to displace the middleman, but real estate has not been able to make it till then. That led to the rise of new generation peer-to-peer platforms like NoBroker.
The trend of renting broker-free homes has started to take prominence globally and there are some global players in broker-free rentals like Yopa.com (Your Online Property Agent) in UK, Aiwugiwu in China & RenterSt in NYC. These platforms eliminate the middleman (and hence the brokerage) and connect owners and tenants directly. The information asymmetry has been completely removed and a transaction is possible at much lower cost. Fundamentally, what used to take a lot of time and led to making a decision without looking at the large number of options has been replaced by deciding on a day by looking at a large pool of options and at zero cost (saving of almost 18 percent).
This is exactly what Walmart and then Amazon did in the U.S. e-Commerce by eliminating inefficiencies and middleman and passing on those savings to the customers and this is where real estate is heading. The future is going to be where majority transactions will take place without brokers and the technology should keep pace by replacing and adding more value than what a broker does. Offerings like smart recommendations based on real-time data (something which an offline broker cannot provide effectively) and online registration with door step delivery will further add value. The algorithms have to become stronger than heuristics and may need to borrow from various other industries to replicate some of the complex functions, pricing estimate being one of them. The markets will then become more efficient as sometimes prices are distorted because of the middleman.
Technology has changed the way real estate operates. AirBnB has suddenly unlocked lot of value in the extra room in the house. Portals like NoBroker make sure that you save the 50k that you would have paid as brokerage. I believe that the next step is to build customer confidence and ensure that people can buy or rent houses effortlessly like making a purchase on e-Commerce sites. For this to happen, especially for non-standard houses in rental and resale would require much richer data than what we have and probably enough safeguards like e-Commerce equivalent of free returns upto 30 days. Now, we need to keep pace or rather define what people need next in real estate and of course, Musk is going to put us on Mars by 2025. We should be ready for real estate play at Mars, obviously without brokers.