Property technology (proptech) was riding high on the strong demand in the real estate industry in Southeast Asia until the onset of the novel coronavirus towards the end of 2019.
The pandemic created a panic in the real estate market, prompting customers to defer their property purchase decisions. This, in turn, dealt a huge blow to the overall proptech sector in the region.
As the contagion spread rapidly, businesses suffered. While a few proptech startups were pushed to the brink some were forced to change their business model for survival.
Industry experts believe that the full picture of the effects of the crisis will become more visible in the coming months, although they hope for a rebound.
But will it come back to the pre-pandemic glory?
“If we look at the past long-term property trends in Asia, it has always come back after demand shocks. This might be a a testament to the fact that Asia is still urbanising and the long-term demand for property and the related proptech sector is still trending upwards,” says Kay Mok Ku, Managing Partner of Gobi Partners, a leading ASEAN-focused VC firm.
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“It is likely that the real estate industry in Asia will return to its previous glory. What is unknown, however, is how long the recovery will take, given that we do not know when a vaccine will be available. It should revert to the previous normal as long as a vaccine removes the need for social distancing,” Mok Ku predicts.
Still in the early stages
As Mok Ku points out, Asia’s — particularly Southeast Asia’s — proptech industry is small and still in is infancy. The market still largely remains untapped.
The pandemic hasn’t had much impact on the VC investments into the region’s proptech. As per the data collated by startup research platform Tracxn, in FY2019-20, more than US$202 million venture capital was invested in the industry across 25 deals. During April 2020 to June 2020 (when the pandemic was at its peak), upwards of US$25 million was invested across six deals.
Across all the markets, companies based in Singapore (12) and Vietnam (seven) bagged the most number of deals during the April-June 2020 period. These numbers are expected to rise, thanks to the growing middle-class and salaries, growing urbanisation and younger population, and massive smartphone penetration.
“Property is one of the least disrupted industries in Southeast Asia; the market is still gigantic despite the fact that economic recession is imminent. Hence the opportunity is still great,” remarks Wong Whei Meng, Founder-CEO of Speedrent.
For Speedrent, a home rental platform in Malaysia, the first signs of a recovery are already showing; its May sales rebounded to the pre-COVID19 level, claims Meng. “The numbers looked great in June and we expect it to grow more than 20 percent (in the coming months),” Meng said.
“The effects of the pandemic are still working their way through the Southeast Asian economies and it’s too early to get a clear view of how this pandemic will unfold in the proptech sector,” said Ali Fancy, Principal at Cento Ventures, which is focused on the emerging markets in Southeast Asia.
“Perhaps the first set of early data points we’ll see will be towards the end of July/early August,” he added.
Having said that, consumers have been cautious about investing in the sector. They are no longer going out to public spaces, with social distancing becoming part of the routine. As a result, the co-working space has lost business.
But it has a positive side to it; the demand for affordable private spaces, such as enclosed offices, rather than hot desks in co-working spaces has risen. Consumers are also more comfortable with virtual viewing — so proptech platforms tapping this have an opportunity to grow.
“Proptech firms use technology to manage supply and demand for properties in innovative ways; for example, co-working/short-term residential rental. This means most of them are not saddled with huge fixed costs of the assets,” adds Mok Ku. This augurs well for the overall industry.
The other key outcome is that the pandemic has accelerated digitisation across industries: digital property platforms now have new opportunities to offer easier and smoother journey and experience for customers looking to purchase or rent a house.
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“Digital acceleration may spur demand for housing in city outskirts as people are warming up to working from home. We will start to see this happen in the next two to three years as companies adapt to the advanced communication/collaborative tools to support the work-from-home policy,” Meng says.
What is lacking?
Southeast Asia is not a single homogeneous market, which means the real estate market conditions vary widely across the countries. There are many local brands that are still developing and not ready for regional consolidation. While there are the likes of heavily-funded PropertyGuru (both Singapore), Propzy (Vietnam), and iMyanmarHouse — which have been leaders in their respective real estate markets — there is no single player that has monopolised the Southeast Asian market yet. In the next three to five years, the region will see new giants emerge, predicts Meng.
Experts agree that only the surface has been scratched as of now and the Southeast Asian market is yet to see major innovation. A lot of things are on-demand now; the sales journey is still very tedious. “There should be strong proptech in the scene where it can offer to buy a house within a day, like Unmortgage in the UK,” he opined.
“In general, direct transactions between owners and renters, especially on a short-term basis, still suffer from trust issues, e.g. properties often differ from online description or cleanliness is not up to standard. This has affected the take-off of P2P marketplaces such as Airbnb. Instead, B2C models, similar to Tujia in China, seem more appropriate for Southeast Asia,” Mok Ku explained.
While the real estate market has been bearing the brunt of the COVID-19 pandemic, all is not lost yet if experts are to be believed. The sector will come back as it is still in its nascent stage, and there is massive potential. The pandemic will trigger more innovations, which will help the consumers as well as the industry in the long-term.
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