The real estate business is upgrading from just advertising on the web to a sophisticated, secure system where all properties will one day be bought, sold and legally transferred online.
By David Braue
The world’s real estate was valued in January 2016 at US$217 trillion. Homes make up US$162 trillion of that, according to global real estate firm Savills, which created the estimate. The market comprises 2.5 billion households and is the centre of most of the world’s economic activity.
The real estate industry that buys and sells all this territory has been regarded until recently as a technology laggard, with many of its personnel engaged in working on detailed, manual transactions based on mountains of paper. Real estate sites and smartphone apps with virtual reality tours have replaced newspaper listings with a richer stream of information from burgeoning online databases, but this is one of the few areas of the industry that has so far put new technologies into practice.
That’s all changing now – and quickly. As it gears up for a fully digital future, the real estate industry is embracing technologies that are turning long-established practices upside-down – from real estate agents streamlining buyer interactions to builders exploring alternative capital-raising strategies, and back-end exchanges linking conveyancers, solicitors, financiers and land-title authorities.
Neville Sanders, president of the Real Estate Institute of Australia (REIA) with its 35,000 Australian real estate agencies, has seen agencies improve their use of customer relationship management (CRM) tools, such as PropertyBase, realestateVIEW’s Touchbase and Agentbox, to automate lead tracking, contract distribution and follow-up. The new systems have won residential buyers over, he says.
Processes such as finance, however, have presented rather different challenges. Some A$31.7 billion in home-related finance was written on 54,600 Australian properties in August 2016 alone, each transfer requiring a pile of paperwork. The industry has struggled to digitise its processes for transferring property, largely because they involve so many stakeholders and interests.
Even where the different stakeholders with all their divergent interests can get those interests aligned, these complex interactions must meet a variety of strict criteria. The main ones are that access to exchanges must be universal from anywhere across the nation, the security of online property and finance transactions must be absolute, and compliance with all state and local laws must be complete.
“The concerted force behind e-conveyancing appears to have produced a workable solution.”
Two core technologies are now reshaping the way these processes are handled. Cloud-based services can seamlessly link the many parties to a property transaction and facilitate standards-based communication and access to innovative new services.
The other transformative technology, says Sanders, has been the humble tablet computer, which has helped realtors bring live CRM tools, key documents and other features to the front door of the properties they’re representing.
“It’s not that long since apps became the norm,” he says, “but touchscreens and iPads are the sorts of things that make these opportunities available.”
Those systems, and the new-found enthusiasm of real estate industry participants to use them, are rapidly reshaping the property market from front to back. By putting new and emerging digital technologies to better effect than ever before, the many players in the real estate industry are recognising and enjoying the benefits of modernising and streamlining one of Australia’s most valuable industries. Here are some of the digital practices to watch.
Crowdfunding already has a strong legacy in supporting start-up businesses and innovative products, so it was only a matter of time before it was harnessed for real estate investment. US investors put US$1.26 billion (A$1.67 billion) into real estate crowdfunding and peer-to-peer lending schemes in 2015, according to a Cambridge Judge Business School report, which suggested alternative finance platforms are a fast-growing threat to established banking and finance giants.
US real estate crowdfunding sites such as Fundrise and Brickraise already allow small investors to sink hundreds or thousands of dollars into a pool from which developers of real estate projects draw capital to complete their projects, then disburse returns to all participants when the properties are sold and profits realised.
Waleed Esbaitah, founder of Dubai-based Real Estate Crowdfunding platform Durise, is one of those proponents who argues that crowdfunding gives small investors access to markets previously left to the very rich and to locals. “Crowdfunding opportunities in the real estate industry offer the perfect match between an asset class that every investment portfolio should have and the convenience of online investing,” he wrote in 2016 on the crowdfunding site CrowdFundBeat.
The rise of such a radical new finance source has sent ripples through the traditionally heavily regulated property finance system. New US regulations set a maximum offering amount of US$1 million in any 12-month period and prevent individual investors from committing more than 10 per cent of their annual income or net worth to a project.
“It’s completely changing the way we do business.” Mark Morgan, Colin Biggers & Paisley
In Australia, where firms such as Melbourne-based Estate Baron and Western Australia’s CrowdfundUP have launched similar schemes, real estate crowdfunding attracted the interest of the Australian Securities and Investments Commission (ASIC) as early as 2012.
Crowdfunding is neither prohibited nor regulated by ASIC in Australia. Existing laws, however, may make crowdfunding difficult. ASIC commissioner Greg Tanzer issued a warning that some types of crowdfunding “could involve offering or advertising a financial product, providing a financial service or fundraising through securities requiring a complying disclosure document” – as well as potentially requiring an Australian financial services licence.
REIA’s Sanders acknowledges the appeal of crowdfunding schemes but says they form an “absolutely minuscule” part of the market. He also argues they may pose risks for “naïve” investors. Industry experts on both sides of the issue expect a debate in the years ahead.
Real estate players are far from alone in trying to move away from a reliance on paper, but even progressive players often find themselves limited by the industry’s myriad data sources and the variability of digital sophistication across the other firms they deal with.
When paperless systems work for real estate players, however, the pay-offs can be huge. Witness Colin Biggers & Paisley (CBP), whose property conveyancing group handles thousands of real estate contracts annually and may process the sales of up to 200 apartments in a given day. Each contract can run to 600 pages or more. With multiple copies required, the firm previously faced managing more than 200,000 pages of contract documents in a single day – incurring hundreds of dollars in printing, scanning, filing, archiving and courier costs per contract.
The time and resources required to manage paper contracts during high-volume conveyancing projects was “staggering”, says CBP partner Mark Morgan. “Every contract needed to be manually checked and cross-checked by paralegals before and after contracts were entered into. There were constant concerns about staff growing tired and missing errors, such as pages being left out or details overlooked.”
“Broadband and mobile communications are reducing demand for office space.”
Digitising this type of paper-based process requires more than just scanning and emailing a PDF file. Electronic documents must be digitally signed to ensure the integrity of the document chain by creating an audit trail that shows when, how and by whom any changes were made.
Adopting the DocuSign digital transaction management platform allowed CBP to begin transitioning its contract-management processes to a fully digital environment. Documents can now be digitally read and electronically signed by purchasers on their own devices anywhere in the world, with electronic copies available for download by all interested parties.
“It’s completely changing the way we do business,” says Morgan, noting that contract-management time has been slashed by 90 per cent and printing costs completely eliminated.
Yet he says this is not just a cost-cutting exercise; the technology also “ensures that a finalised contract is secure and cannot be changed without detection. We can be 100 per cent confident the e-contracts meet all legal requirements.”
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As anybody who has ever purchased a property knows, the conveyancing process is convoluted, complex, detailed and inflexible. The substantially manual process means errors are common. The ability of digital technologies to improve the process has been long recognised, but it was only in 2010 that the industry got its head around how to make it happen.
The formation of Property Exchange Australia (PEXA) – fulfilling a Council of Australian Governments (COAG) mandate to introduce e-conveyancing – delivered a common platform that allows the rapid collation, exchange and verification of real estate-related documentation from the realtor to the relevant state land registry.
PEXA is now Australia’s largest processor and counts nearly 3200 lawyers, conveyancers and financial institutions as members. Jointly managed by four state governments (New South Wales, Victoria, Queensland and Western Australia), Australia’s four leading banks and industry bodies including Macquarie Capital, PEXA has processed A$26 billion worth of property through more than 220,000 transactions since it launched in November 2014.
Bringing PEXA to fruition in such circumstances has taken a concerted cross-government effort, with existing systems tied together and new identity verification services put in place. Yet most of the governments and organisations involved now seem confident the system will expand through 2017.
Reshaping the landscape
Technology’s biggest impacts on the real estate industry may well flow from its effects on the broader business world.
By making telework easier, broadband and mobile communications are reducing demand for office space, notes Saeid Garebaglow, vice-president of US corporate real estate consultancy Faithful+Gould, in an article written in 2016 for the World Economic Forum.
Looking further out, experts on cities are now starting to speculate on how a new wave of transport technologies – from self-driving cars and trucks to delivery drones – might alter demand for homes, shops and offices in different parts of cities.
The real estate industry that so long escaped the influence of digital technology may soon be reshaped by it.
It’s early days for blockchain, a distributed-ledger technology that is best known as the basis of the Bitcoin virtual currency – but the Australian Taxation Office, Australian Securities and Investments Commission, Treasury and most banks are experimenting with ways its design could prove useful. That sort of rapid validation has put it on the radar this year.
Blockchain technology is complex. The basic idea is that it allows for the creation of openly accessible ledgers that record every transaction in a way that cannot be modified. Ledger information is stored across several trusted authorities to ensure its internal integrity, and new transactions can only be added by people or systems explicitly authorised to access the blockchain.
For the real estate industry, which at its most fundamental is all about maintaining inviolable registers of property ownership, this new technology has predictably generated a wave of interest. Deloitte recently called blockchain “the next game changer in real estate”, noting its ability to eliminate the industry’s middlemen and resolve “information asymmetry” in the market through total transparency, removing the risk of fraud and speeding up the process of buying or selling a property.
Some players are already moving. In October, Cook County, Illinois – the local government of Chicago and the second-largest US property administrator – partnered with real estate technology start-up Velox.re, the International Blockchain Real Estate Association and global law firm Hogan Lovells for a pilot project testing the use of blockchain for transferring property titles and other public records.
The project will be closely watched and a successful implementation will lend weight to similar efforts in jurisdictions around the world. Although such a move creates new security and other concerns, such as the lack of native encryption, a rapidly maturing body of knowledge around blockchain could well turn it into a transformative force for real estate transactions.