4 reasons why Proptech has to fight hard in the GCC
If you have a remote interest in the intersection of real estate and tech, you might have noticed that the last couple of years have been an exciting time for proptech disruption. This disruption is by no means new, as there are mentions about this starting 2012. However, traction on this topic is now at a fever pitch and money is being poured into proptech left and right.
For MENA, and in particular the GCC, we ask the usual question: “What does this mean for us?”
The answer is consistent Whether it’s health-tech or ed-tech or prop-tech or any other [insert shortened industry name]-tech. Some innovators are leading the charge, others falter. Challenges abound, and we are off to a slow start, but a start nonetheless.
The real estate industry in MENA has matured to a stage where it must confront sizable obstacles to large scale adoption of innovative tech. Identifying and understanding these obstacles enables one to decipher the mechanics behind them. Governments, tech startups, and real estate professionals are gradually untangling them.
I have spent the majority of my professional life in the GCC. During this time I worked in tech roles with companies across various. As a result, I’ve become uncomfortably familiar with the challenges I’ll discuss below.
Why should you care?
If you are already in the region, or if you’re a Proptech startup looking to move to the region, then this article is a good place for you to start. Getting into the proptech industry here requires a solid understanding of both prop and tech. Keep in mind, I’m keeping things at a high level for now, and future pieces will delve into more detail.
State of Play
A brief look at the ArabNet annual investment report will show impressive scales of investments year on year in most of the Arab World.
More than USD 900 million has been invested in regional digital startups in the last 4 years. With over 100 active institutional investors across the region, MENA has witnessed a proliferation of new funding institutions in the past 5 years with VC funds capturing the lion’s share of the investor community.
Gradually, this money is making its way into the real estate industry in the region. While access to finance is a problem area in parts of MENA, the GCC has largely been immune to that situation due to the various modalities by which government funds are disbursed to seed stage startups, whether through grants, incubators, or the ever-popular startup competitions.
Following is a brief examination of factors that stifle the larger scale adoption of cutting edge property technology solutions, whether IoT or software.
1. Legal frameworks
Restrictive legal frameworks are a constant barrier for various tech startups hoping to bring their products here. There are incredible drone startups that can bring a lot of efficiency to the complex world of real estate and construction (among many others) but are incapacitated by the fact that drones flying without the authorization of the federal aviation authority (outside of specific ‘drone fly zones’) will be shot down and fined. A topographical site survey can be performed by a drone at around one fourth the cost and one eighth the time it traditionally takes. Even though the impact of this product is evident, regulation has not yet caught up to the nuances between industrial, personal, and espionage drones.
Blockchain real estate companies can expect a similar struggle as governments gradually form a stance. As often seen with new technologies, the policy formulation process starts with an ambiguous no, followed by a gradual ease of restrictions as the technology gains momentum and policymakers familiarize themselves with its nuances. This phenomenon is by no means restricted to technology, as evident with co-living.
This approach of erring on the side of caution stifles innovation and adoption of groundbreaking solutions.
2. Dinosaurs with computers
This following bit is unfriendly — to say the least — but bear with me.
The real estate & construction industry in particular is dominated by experts and players in the field that have been doing this for the last 30 years. Naturally, those are the individuals at the top of the decision-making charts in these companies. It’s unfair to expect that demographic to remain up-to-date with the latest AI algorithms or the differences between permissioned and un-permissioned blockchain networks. As a result, a tech comfort zone comes to form around which real estate professionals are anchored.
Aconex is great example of this as it remains a behemoth despite strong competition in the market. This anchoring process makes decision makers less likely to engage disruptive startups.
3. Old dogs, new tricks
Tech is a universe of ecosystems, with its own set of rules and processes. (Prop)Tech innovation it requires a different mindset. As a software developer and product manager, I repeatedly had basic discussions with clients on bugs, versions, and QA. The objective of these discussions was explaining that this is a part of the process rather than a crisis situation requiring remedial action.
How does a company tender for a contracting project with a real estate developer or with a construction company currently in MENA? These terms come to mind:
- Request for Proposals
- Sealed envelope
- A waterfall/Gantt chart
..along with every other project management tool that would terrify a millennial.
Conversely, how can a company onboard a young technology partner to develop a tech product? Instead of Gantt charts and monthly project reports, the jargon focuses more on lingo such as fail fast fail often, trial and error, agile, and other terms that would terrify real estate professionals born before the first moon landing.
If anything, building a tech product is less like building a wall and more like painting it: Paint one layer, step back and examine, paint another, let it dry, and another layer until you’re happy with the finished product.
4. Lots of money is not the same as brave money
The 3 concepts above combine to bring about a fourth challenge: Hesitant investment.
Absent VC’s and incubators focused on real estate tech, the gap is filled by real estate companies with a vision for proptech. Companies and organizations that overcome the above-mentioned obstacles and are capable of earmarking funds for real estate tech innovation are ones that have endured an arduous journey to do so, and will be extremely cautious with that money, and rightly so. The resulting scenario is one that places several requirements for an investment to take place to the point that it drives entrepreneurs operating on a small budget and cannot afford to wait forever, away. They cannot be blamed for cutting their losses to ensure the survival of their fledgling businesses. Such requirements can sometimes be unrealistic. I have spoken to many a startup frustrated by potential clients (real estate and other) that want to ensure they are the first in the market to deploy their technology, while simultaneously demanding local market expertise and precedent to offset their risk. Asking for a pilot stage — while fair — is a heavy lift for a Proptech entrepreneur hungry for a client in a downward real estate market.
The aim of this piece is not to scare you away from the region or proptech o̶r̶ ̶a̶n̶y̶ ̶o̶f̶ ̶m̶y̶ ̶f̶u̶t̶u̶r̶e̶ ̶a̶r̶t̶i̶c̶l̶e̶s̶. I’ll end on a positive note:
This is changing. Do not despair.
The followup to this piece will shed light on various ways in which governments and the industry are chipping away at the issues I highlighted. This in turn is opening the door for the slew of proptech entrepreneurs who understand that this is a market that can make them into millionaires.
