Rise In PE Investments: Potential In PropTech

According to a report by Housing.com, the private equity (PE) inflow into PropTech firms increased by 5 per cent to $270 million in the first half of 2022. In addition, transaction deals increased by 1.5 times this fiscal year, with the average deal size standing at $14 million.

With the advancement of technology in the proptech domain, private equity players in the domain are growing year-on-year and it has gained momentum. Between 2009 and the first half of 2022, the Proptech industry in India received a total of $3.42 billion in private funding. Since 2009, the online business platforms that investors have been paying attention to have changed from being merely digital classifieds platforms to ones that provide full-stack solutions for discovery, advice, and transactional assistance.

In the near future, the segment is projected to experience a massive spike. Ankur Mittal, Co-founder, Inflection Point Ventures said, "There is no doubt that property-tech has changed the face of real estate. Additionally, it is said to be a high-yield asset class for investors seeking fresh opportunities as well as an innovation that addresses real market challenges. As per Traxcn data, the Indian PropTech sector has so far produced one unicorn and more than twenty-five startups with Series A funding and beyond. With technology outpacing every day, investments in this sector look promising."

Since India is poised to witness tremendous growth in the proptech domain, investors are eyeing the promising future and investors need to have a clear vision as far as exiting an asset class is concerned.

Anirudh A. Damani, Managing Partner, Artha Venture Fund stated, "We do not want to take on real estate risks, especially in large ticket investments like coworking, coliving spaces, or hostels. We’ve had our share of challenges in this space since there is only a slight chance of recovering the investment made in a property if things go wrong. I believe utilising VC money for rental deposits or property development is a mismatch of high internal rate of return (IRR) capital with low IRR returns. For instance, no coworking space can provide more than 30 per cent IRR, while a VC should not deploy capital into a company for less than 80-100 per cent IRR returns per investment."

He further mentioned that the procedure of identifying a property, conducting due diligence, financing it and then finally acquiring it remains broken at various levels. While the government is doing its bit to simplify property records, there is a lot yet to get done.

Proptech is still a fresh domain, investors eyeing to venture into the space need to prepare itself for all the highs and lows of the industry. An exit strategy is as important as venturing into space.

Sailesh Sigatapu, Partner, Anthill Ventures, said, "We don’t go into an investment with an exit strategy because, in our experience, early-stage startups evolve a lot over the years and we are their partners in enabling them to reach that scale. Broadly, there are many exit options for proptech companies given how large the real estate and construction sector is and with industry leaders turning to innovation to stay ahead of the curve."

The proptech firms in the space are using artificial intelligence (AI), virtual reality, and the internet of things (IoT) to augment the customer experience. With the advancement of technology, all the stakeholders can connect on the same platform. Jeslin George, Senior Vice President-Marketing, hBits said, "AI analyses consumer and purchasing behaviour and identifies potential investors. This has immensely helped real estate players reach out to consumers with the right kind of investment option. Adding to this tech-led growth, blockchain has led to the birth of a new way to help buyers and sellers connect and has reduced costs by limiting the role of an intermediate in the transaction process."

Technology drastically streamlines the processes involved in a transaction and cuts down the average time taken for the closure of a property transaction. Prior to the pandemic, the real estate industry had a slow adoption of digital technology. However, the pandemic has ramped up the industry's digital transition, giving rise to proptech startups that are now posing a serious threat to the status quo. Utilising automated real estate technologies has countless advantages.

Moreover, Mittal added that India's economy is dominated by real estate due to its rapid growth. There is a big advantage here, any startup that is created to address challenges and users are willing to pay, will succeed. The increase in urbanisation is causing offices to open beyond Tier 1 cities, with organisations allowing employees to work from home, so the infrastructure is required all across the country. 

There are similar ideas in this area with a strong emphasis on customer experience, which evaluates customer needs and acquisition. Customer preferences and practices in property transactions where customer retention will continue to be a big focus in this sector.