Technology’s Next Target: Real Estate
By Kenny NG
In a world powered by artificial intelligence and cloud computing, can we really use big data to drive returns for real estate investment?
Based on a study by McKinsey, the construction sector (at least in the US) is one of the least digitized industries after agriculture. Within China, real estate contributes approximately 12% of GDP and is often seen as a leading indicator of growth for the domestic economy and other sectors such as infrastructure, said David Hong, Head of Research at E-House (China), speaking at the Shanghai Summit of the 2019 Asia Investment Conference.
Can real estate – being a one of the world's most age-old and traditional asset class - really be disrupted?
“The real estate market today is closely integrated with the consumer and their lifestyles.”
Weishi Yao, Founder and Chairman of Chasestone Capital which manages about CNY 50 billion across real estate and equities, said that companies that have emerged from changing consumer lifestyles and technology such as AirBnB and WeWork represent only a small fraction of the disruption possibilities in the real estate market.
One of the biggest segments primed for transformation happens to also be in the construction space, whereby more environmentally friendly, lighter and cost-effective materials can be used when developing a building or real estate property. In terms of lifestyles, augmented reality and robotics will also provide opportunities for companies to enable individuals to design and customize many aspects of their living and working spaces.
Beyond the hardware of it all, Lijia Zhao, President and Chairman of Shanghai-based real estate developer, Shanghai MinGa, believes that companies in the future will also be able to harness artificial intelligence and big data to help in urban planning and re-modelling, which will further shape the landscape for the real estate sector.
Data is your friend.
John Millar, Chief Strategic Development Officer for Thailand based real estate firm, Ananda Holdings, said that his company uses innovation and technology heavily within the property value chain – from land bidding to after-sales.
“Even in the most traditional of industries, there is still opportunity for the right companies dealing with technologies in the right way to achieve disruption.”
Ananda Development is currently working with Stanford University to use micro-trends based on points of interest (POI) data to predict future real estate values. For example, once a plot of land has been identified, the data relating to the real estate is then being processed with artificial intelligence to generate a series of designs that will allow the developer to maximize the commercial value of the land.
Millar says that a lot of this work currently being done is also known as “generative design”, in which artificial intelligence utilizes POI data and zoning rules to design a building as compared to traditionally engaging an architect to do the work. As a result of this game-changing algorithm, the company is not only able to reduce the lead time required to build a 20-storey condominium in Thailand from 24 months to 14 months, but also able to improve the quality and make of the building and its facilities.
“This kind of big data analysis has never been possible before, because it has never existed before.”
Due to digitization, data scientists today are able to collect and analyze data, enabling developers to optimize their revenues by looking at the factors that drive pricing such as height, quality of view, proximity to road intersections and many more. All this allows investors to make highly informed calculations when in comes to pricing the deal.
Human factor: The one thing that can’t be disrupted.
Stuart Mercier, Managing Director and Head of China for Brookfield Asset Management, a USD 500 billion real assets manager, said that a high-quality management team was a key criterion for the fund manager’s investment mandate. He cited Brookfield’s entry into China in 2013 through a joint venture then with local developer, Shui On Land. He also said that Brookfield Growth Partners, the group’s venture arm, has also earmarked its own capital to invest in technology-enabled businesses that have potential synergies with the group’s portfolio.
As far as manpower and technology is concerned, Millar is very interested in deploying automation and robotics to overcome the labour shortage in Thailand for its development projects. However, the use of robotics in such an environment is currently still in nascent stages and requires the oversight of humans.
“Robotics is still not ready to work in an unstructured environment. So we need to do a lot of work off site and bring it on site.”
Only time will tell if artificial intelligence and data analytics will be capable of achieving the promised outsized returns for those looking to invest in this traditional asset class.
This article is a curated transcript of the panel discussion session "The Changing Face of Real Estate: Technology as a Disruptor" at the Shanghai Summit of the Asia Investment Conference. Watch the full recording here.