Seven Asian VCs Share Their Year Of The Pig Predictions For PropTech

Real Estate

Year of the Pig photo credit: GettyGetty

At the end of last year, I published a 2019 forecasts piece in which five VCs hailing from the US, the UK, and Continental Europe shared their thoughts on PropTech in 2018 and their expectations for the year ahead. The article was a huge hit and generated a lot of discussion in the startup and investment communities. One of the most frequent comments I received was that I should have also spoken to VCs operating in Asia and Oceania.

So, ahead of Chinese New Year on February 5, I decided to ask seven Asian PropTech focused VCs for their views on investments in the region in the Year of the Dog, and their forecasts for the Year of the Pig.  They are:

Abhishek Goenka, CFO of Bangalore based CoWrks and CIO of CoWrks Foundry, an accelerator that is investing in Indian PropTech startups.

Takeshi Kodama, Project Manager at Tokyo based 31Ventures, Mitsui Fudosan’s corporate venture capital fund.

Pauline Chong, principal with Cento Ventures, a Singapore-based technology VC.

Annabel Yang, CEO of Hangzhou-based G5 Capital, the venture arm of G5 Innovation Networks.

Jonathan Hannam, Founder and CEO of Taronga Ventures, a Sydney based Asian focused PropTech VC

Anthony Liu, who leads the New Ventures team at Hong Kong-based Swire Properties, and is responsible for sourcing and funding experimental tech solutions for Swire.

Anuj Nangpal, APAC Lead for JLL Spark, a global Proptech Venture fund sponsored by JLL, a leader in Real Estate services.

This is what they had to say.

What does the Asian Proptech investment landscape look like currently in general, and in your region specifically? How does it compare, in your opinion, to the US and European markets?

It is worth noting, as Liu pointed out, that Asia is an enormous and extremely diversified place, made up of countries and regions that have very different stories in terms of PropTech. This being said, all the VCs agreed that Asian PropTech is decidedly behind the curve when compared to the US, but is growing fast.

Chong told me that “Capital investment into SE Asia proptech is rapidly increasing, albeit off a low base. Estimated investment into proptech in this region was circa $260 million in 2018, which was quadruple that of 2017. We expect increased investment going into this sector in 2019 and going forward.” Kodama echoed her words with regards to the Japanese PropTech ecosystem, stating that it is very much in its infancy. However, he foresees that Japanese PropTech startups will have opportunities to enter ‘brick and mortar’ industries through so-called open-innovation programs which Japan’s traditional real estate companies have come to value in recent years.

Goenka said that “In terms of the value of investments, the US stands first by a huge margin, while China, UK, and India remain the distant 2nd, 3rd, and 4th respectively. In terms of early-stage deals, however, the Asia – Pacific region is seeing huge numbers, while Series A & B funding is the highest in the USA and UK. This shows that Asian countries are fast adopting PropTech and that the US and UK markets are slowly maturing.” Hannam highlighted a possible reason for this, stating that “Though there is a tremendous amount of angel and seed capital available from high net worth individuals across Asia, follow on early-stage and growth capital has traditionally been missing, and this is the gap that Taronga Ventures is filling.”  He went on to note that once an early stage business has traction there are numerous investors or take out partners, including major technology firms like Alibaba and Tencent, as well as traditional private equity firms like Brookfield, Blackstone, and KKR.

Nangpal noted that, for the first time, PropTech specific funds are being set up in APAC. He pointed out that most investments to date have been in consumer PropTech, with residential brokerage and interior design receiving maximum traction. This is closely followed by investments into the sharing economy like co-working and co-living. His words were echoed by Liu, who told me that “Previously, the scene in China was dominated by B2C marketplaces, listing portals, and design/renovation tools, particularly on the residential side. Recently there has been strong growth in B2B and enterprise property solutions, targeted specifically at large corporate customers who look to enhance their commercial and residential portfolios. Key areas include IOT for building management, energy tech, air quality monitoring, sales tools, interactive marketing, and more.”

Ahead of the Chinese New Year on Feb. 5th, what is your outlook for Proptech in your region for the Year of the Pig?

Golden pig statue on red background photo credit: GettyGetty

2019 will see a growth in PropTech investments in the region. More institutional capital will be allocated to the sector and, crucially according to Liu, many Asian corporates are finally developing formal channels and processes to trial and integrate these tech solutions. Chong noted that “According to Chinese astrology predictions, the year of the Earth Pig 2019 is a great year to make money, and a good year to invest. 2019 is an auspicious year because the Pig attracts success in all the spheres of life.”

In terms of tech types, the VCs I spoke with have varying views.

Goenka thinks that among the Proptech verticals, Brokerage and Leasing appears to dominate. Kodama told me that he “see[s] the rise of VR startups that aim at optimizing the leasing process of houses. The space of connected home devices is also still hot in our country. However, the team dares to deep dive into the ‘shared-office’ sector, since the office building division is the cash cow of Mitsui Fudosan.” Chong said that she sees more investment into property marketplaces, transaction-based brokerages and property-related service plays, as well as more willingness by investors and real estate corporates to look to tech plays for products and services that resolve fundamental problems for the sector.

Yang believes there will be a shift in capital allocation from residential to commercial real estate as domestic real estate industry policies cool down. “There will be more application-level system solutions for solving energy consumption problems and solving manual efficiency problems.”

According to Hannam, “We will continue to see merger activity – especially in the co-working and collaboration space, in the VR/AR/MR space and in commercial and residential leasing and sales. 2019 will continue to see a maturing of the sector and we will see some of the sector ‘hype’ replaced by some real outcomes or successes.”

Nangpal believes that, with rentals peaking in most APAC markets, the focus will be on efficient management of Real Estate, which is a good sign for Property Management platforms and Big data plays in decision making.

How does this compare to the Year of the Dog (2018)?

The VCs all agree that the Year of the Pig will surpass that of the Dog when it comes to PropTech, as the hype that characterized 2018 turns into actual tech implementation by industry players in 2019.

Nangpal pointed out that though 2018 was a year of high hopes for Proptech in APAC, there was very little adoption of these technologies in real estate firms. “Interestingly, 2018 saw many Real Estate players in APAC set up internal innovation teams and technology teams to take a closer look at Proptech developments across the world, especially in the US. The idea was to test and import technology into APAC.”

Hannam told me that “During 2018 we witnessed a rapid improvement in the quality of start-ups seeking capital and a surge in the volume of deal flow across Asia.  For many corporates, 2018 was all about continuing to learn and absorb information in order to better define a corporate innovation strategy. An understandable negative of 2018 was the considerable hype that surrounds the PropTech space, which unfortunately reinforces some skeptics at the highest echelons of the traditional owners. Our focus is to move beyond the hype, towards enhancing portfolio and investment returns.”

Chong noted that last year, co-working and co-living themes won the lion’s share of investment. She thinks that “this year, investors will watch how initial capital injected into these large platforms will pan out and how they will compete against each other, given the rising number of Asian co-working brands in the market.”

Kodama believes that as the shared-office industry such as WeWork and the Hive grow, the number of PropTech startups will accordingly increase. He predicts that “the increase will result in creating business opportunities both for startups which facilitate mutual communications among those users and for startups which improve user experiences of such shared-offices by IoT sensors.”

According to Yang, 2018 was the first year of a real estate transition. “Many well-prepared companies, such as the parent company of G5, have begun to deploy a global technological transformation. At the same time, many small and medium-sized real estate companies face direct financial chain breaks and bankruptcy problems due to insufficient risk awareness.”

Goenka hopes to see better adoption of technologies in the Year of Pig. He told me that “technologies like Blockchain will also find adoption in Real Estate for applications such as property listing, leasing, and title creation. India’s PropTech outlook should be strong for the year of Pig, as the Indian Government has recognized the applications and efficiency of Blockchain, and has already implemented Blockchain for title transfers in Amaravati.”

What type of tech are you going to bet on for this year? What sectors of the market?

User experience management, coupled with the sophisticated data analytics and tech which will allow these learnings to be implemented, is the clear winner for this group of Asian focused VCs. Its ultimate goal is of helping real estate companies improve their asset and portfolio performances. Here are their individual views.

Yang noted that, in China, there is widespread use of simple IOT applications to access and manage building data. She thinks that “The future of PropTech should be through deep analysis of data to improve operational management efficiency, reduce waste, and reduce energy consumption so that artificial intelligence can be truly used to make the building smart. In general, we value projects with industrial experience and technological innovation that are of commercial value.”

Chong likes tech-enabled brokerages and startups that are tackling the hard problems of the sector such as property management, leasing, financing, and documentation. She told me that “Across Asia, markets of interest where we see evolving proptech models of increasing sophistication include Singapore, Thailand, and Malaysia. Emerging property portals in new markets such as Vietnam, Myanmar are also interesting.”

Nangpal echoed them both in pointing to technologies that are focused on increasing real estate management and operational efficiency, both through tenant experience management and the use of AI.

Liu also likes smart buildings, as well as analytics and automation, and Kodama said that his team is continuing to invest “in spaces that have direct synergies with the concept of “smart cities”, such as AI, IoT, cybersecurity, mobility, and e-commerce.”

Hannam shared that “a key theme that Taronga Ventures continues to follow in 2019 is real, live customer insight as seen by the portfolio owner. In the case of commercial owners, for example, this is not the tenant that signs the lease in an office building but the underlying employees that are using the space. For retail, this is not the retail store owner, but the shopper who enters the shopping mall. It is also about the construction worker and enhancing worker safety to reduce the number of injuries and fatalities that occur on our building sites.”

Similarly, Goenka told me that “we are focussing a lot on understanding user behavior and usage patterns for our spaces which will help us in improving existing space design as well as future designs. We are working toward disrupting the way users interact with different spaces and exponentially improve their experience.”

What are your aspirations as an investor for this year, and what barriers (if any) will you have to overcome?

Goenka told me that CoWrks aspires to establish itself as a prime enabler in the Proptech ecosystem in India. Since Proptech in India is still in its early days, there are very few startups which have been able to deliver meaningful solutions, so CoWrks are providing assistance and mentoring startups via their CoWrks foundry program.

Kodama shared that his team is working with startups globally to develop a beta version of a “smart city platform”. Due to the current market momentum, they face competition in sourcing good business opportunities, as well as bullish valuations for startups. This means they will have fewer investment deals that meet their criteria, which has driven them to work hard on enriching their deal flow.

For Cento, this fund is their first to focus on PropTech, and Chung aims to use their expertise in real estate to help portfolio and to invest across the entire value chain. She thinks the real challenge will be winning investor’s capital. “Whilst real estate corporates are quickly realizing they need to engage with technology, there is still hesitation in terms of how to engage. We believe that given the size of this sector’s growth opportunity, that real estate corporates should work with experienced VCs to identify the next generation of Asia proptech winners.”

Yang reckons that innovative Chinese VCs like G5 need to integrate better in the global environment, in order to find strong entrepreneurial teams, incubate them, and to support them in serving China’s huge market with game-changing technology. This requires support from the entire ecosystem, including governments, large corporations, investment institutions, universities, incubators, and more. It is very important that mechanisms are found to foster cooperation for the development of innovative science and technology projects.

Hannam believes that real estate technology is driving tremendous change across a conservative industry. This will lead to greater efficiencies, additional streams of revenue, broader transparency, more sustainable developments, and the creation of future jobs. The Taronga Ventures model involves making strategic investments and then introducing the early stage business through our extensive network of real estate investors and portfolio owners across Asia. The most significant barrier remains the inability of traditional corporates to make decisions – often a quick no is better than a long drawn out maybe.

The Swire New Ventures team has yet to make its first investment, and Liu aspires to secure sustainable access to top-class deals, which is challenging for many corporates without specific VC branding and expertise. They are bridging this gap by working with partners who can bring extensive experience to the table.

Last, but not least, Nangpal told me that JLL Spark is focused on investing into companies that can take advantage of JLLs global reach and effectively serve their investor, occupier and landlord clients at scale. He said that “We want to work closely with all stakeholders in Real Estate to build out an ecosystem to support brilliant entrepreneurs and to provide market access and rapid product-market fit.”

There is clearly a lot of space for growth and investment in Asian PropTech in the Year of the Pig. Startups should take note of the increasing appetite on the part of both institutional investors and corporates and their overarching desire to invest in the user experience management space.

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