This is a guest article written by Adam Edgell-Bush and first appeared in our collaborative e-book “The Future of Property,” which features 17 thought leadership articles covering PropTech, property investment and housing. You can download your free copy here.
Adam Edgell-Bush is the CEO and Co-Founder of Homyze – a platform for property maintenance and improvement works. Adam has previously worked as a property developer within the high-end residential industry and was COO and Principal of one of London’s leading development firms. Prior to this, Adam was a hedge fund and investment manager in London and New York. Originally from Sydney, Adam has a Bachelor’s degree from the University of Sydney (Finance & Fine Arts) and a MBA from NYU Stern School of Business.
“Hey Siri … Can you fix my leaking sink, change lenders on my mortgage and can I have an open floor plan with a minimalist aesthetic?”
Technology has a habit of attacking big problems and going after big markets. It is no real surprise since either VC money or corporate budget needs to be allocated and both of these market participants are at least familiar with the concept of a return on investment. Obviously, it is a lot easier to have a successful project when the scope of its potential application is broad.
So, we have seen a lot of investment and notable successes in industries such as transport (hello Uber, Lyft, Didi Chuxing etc.) e-commerce (ring up Flipkart, Amazon, Jet etc.), fashion (think Farfetch and Amazon (yes, Amazon!)), payments (cha-ching stripe, Powa, TransferWise etc.). Essentially, the universality of the use case – the ‘total addressable market’ or TAM in industry parlance – is huge. It is also a lot easier to offer a compelling value proposition if your target industry is dominated by ‘last generation’ technology and archaic ways of doing business. If you can add-in a fat margin and a commoditised product, you pretty much have the ideal recipe for success.
So, where does property stand on these things? There is no question that property (or more broadly, real estate) as an asset class is very attractive in many regards. First, let’s look at the size of the market. Savills has estimated this at $217 trillion … $217,000,000,000,000. Think that sounds like a lot? It is … even when you think of it in the context of some other really big numbers.
So, that’s a tick for attractive market size then.
The next thing to be aware of is that businesses normally only make money where there is a transaction. So, within the life cycle of property ownership, something has to happen whereby there is the opportunity to add (and capture) value. These transactions can take the form of e.g.:
- Researching the market
- Buying a property
- Getting a mortgage
- Dealing with the necessary legal paperwork
- Undertaking works
- Letting the property out
- Managing the property
- Re-mortgaging
- Selling etc…
And, no great surprises, we have seen a number of entrants at each of these points, ourselves (Homyze) included.
So, let’s look at the question of whether the current ways of doing things are considered ‘last generation’ or have room for improvement. When we look at researching the market, it has been quite a while since records were digitised and available online in the UK. But that is just the UK (and true to slightly greater or lesser extents in other developed markets).
There are still huge markets where establishment and recording of property titles is incomplete at best, and in many cases, non-existent. In this regard, we can see the pending impact of technologies such as the blockchain to record ownership and facilitate transfers. For example, even in the UK there have historically been a lot of cases where companies located in other jurisdictions were sold, facilitating the transfer of the property assets without the recording (or paying) of stamp duty … but this is happening less now than previously.
“It seems like this has tremendous opportunity for improvement.”
When you think of the previous or current process of recording the market transactions that you wish to research: signing documents, sending them to lawyers to do the same, ordering physical copies of documents and titles from dusty vaults across the country – it seems like this has tremendous opportunity for improvement.
“We are seeing some interesting developments from companies that are adding analytical horsepower to what used to be an ‘instinct-led’ approach from investors and purchasers.”
At the end of the day, the bigger question than whether these systems can be improved is who is going to pay for this since public ledgers are typically that – public – and the government would usually be the purchaser (and isn’t known for being a generous payer). As for the information that is already digitised and available, we are seeing some interesting developments from companies that are adding analytical horsepower to what used to be an ‘instinct-led’ approach from investors and purchasers. I would bet on data over instinct … well, actually I would look into whether the data supported such a decision!
“There is a degree of difference between residential and commercial/industrial property in terms of the accessibility of this information.”
The next step in the property life cycle would normally be checking on what properties are for sale. Here, there is a degree of difference between residential and commercial/industrial property in terms of the accessibility of this information. Again, online property portals have existed in most developed markets for a while and there are a number of examples that have gone public and now command $1 billion+ valuations. That would suggest that people are willing to pay for an alternative to registering with all the different agents and walking around various properties that were chosen according to the biases of the agent and with little insight into the universe of options available. Not a great surprise there.
So, once you’ve found a property to purchase, the next thing that you will likely need is finance. So, I guess that means that you will go and meet with your bank manager (who?), who knew that the family were selling that house (what?) and are willing to vouch for you (why?) when they tell head office that they approved your loan. Seems outdated? Sure, it is in most places. However, even the more recent alternative is still far from a friction-free process of trying to find the best deal and paying a broker to hide information from you.
“…and documents needing to be called up from ‘the archives’ in a far-flung location, ‘if someone could only find the key’…”
Once finance is agreed, it is time for the courier round-robin of legal documents flying around the city, held up by people being away and documents needing to be called up from ‘the archives’ in a far-flung location, ‘if someone could only find the key’. Sounds like something that should be automated. So, now let’s assume that the property you are purchasing is not quite your dream home … yet. If only you could ‘open up the living room’ or ‘change that colour in the kids’ room’, or just needed the space that a side extension would provide.
What should you do?
“Doesn’t really sound like smooth sailing.”
Well, I guess you should start putting together ideas of what you want done, and then have them translated into a builder that someone somewhere once recommended, and a couple of others that you found on the internet (and who paid someone to get your details, so will add this onto your price). Only for you to receive three quotes back that seem to be for completely different jobs based on the difference in prices and without having anyone to fall back on if something goes wrong. Doesn’t really sound like smooth sailing, which was why Homyze felt that there was a much better alternative.
Now as an investor, or someone lucky enough to own rental property(s), you will likely need to find someone to pay your lending costs (the mortgage). Historically, agents have charged around 10% for this privilege and for the right to receive the rent from your tenant. And heaven forbid something goes wrong along the way, because they will only call you again to get this fixed (or charge you 150% of the cost to put this right, plus 7% of the rent).
That seems like some margin right there.
And for those renting out properties on short-term lets, or managing many properties, you might even want a fix that allows you to organise repairs from wherever you are, and track the works done from their smartphone. And when the time comes for you to sell? Well, you can just use the process in reverse, and hand over ‘your house history’ (what would be ‘the data room’ for institutional investors) which gives the purchaser details on all the things that have been done to the property, along with the safety certificates, inspections etc..
Reading through the above, it might feel like we are living in the future. Or that all the problems associated with property acquisition, ownership and disposal have been solved. But that is far from the case.
“It is not a commoditised market (at least not in the places where most VCs and startups operate, but there are arguments for saying that it should be the case in developing countries).”
There are two main ways in which property is lacking in terms of its ability to be eaten by technology. The first is that it is not a commoditised market (at least not in the places where most VCs and startups operate, but there are arguments for saying that it should be the case in developing countries). Properties are different, locations are different, tenants and leases are different, works done by previous owners are different. All this means that not everything can be automated easily. So, whilst your ability to order a Homyze plumber from your Alexa or Google Home is very, very close – your description of the issue or comfort in doing so is a variable that cannot as yet be accommodated.
For Homyze, that means that a lot of issues are ‘concierged’ as the VCs would say … utilising but not solely reliant on technology. We are trying to make getting things done easier, more reliable, standardised and transparent. But we still deal with people. And for many people, property is their home and as they say, ‘home is where the heart is’. Even if it isn’t your home as a landlord or property manager, it is someone’s home. So, we want you to feel that when using Homyze, you are showing your home a little love.
– Written by Adam Edgell-Bush
Capital at risk
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