Technology, or ‘‘tech,’’ has become a crucial part of everyone’s daily life, whether overtly or subtly. Investment in real estate – property, if you prefer – is not an exception, and ‘‘proptech’’ has become embedded in almost every aspect of the processes that come along with it.

It comes as no surprise that the global proptech market will reach USD 102.4 billion, with a compound annual growth rate (CAGR) of 16.30% by 2032. The 2022 UBS study also reveals that the proptech sector has not lost any of its momentum, and still harbors the best growth prospects in the real estate industry while playing a key role in its digitalization.

What are the reasons behind this robust growth? Well, let’s take a look.

Immersion in the design

When we visit property websites, we anticipate them to feature video walk-throughs of each offering, along with interactive features that, for instance, allow us to change the camera angles, express interest, or receive automatic updates on new listings or price changes.

To a varying extent, all of these features have been enabled by the existence of technology like, for example, augmented reality (AR). Even if you’re not a real estate investor, you may already be familiar with some aspects of this technology through the use of home-sharing platforms such as Airbnb.

However, this only represents the “front end” of the investing process; proptech has impacted much more. To illustrate, let's rewind to the initial phase: the design process.

Since the mid-1970s, computer-aided design (CAD) programs have enabled architects to select and visualize the key elements they want in a new home: location, size and shape of the site, materials to be used, number of levels, room count and types, bathrooms, garden areas, access points, and aesthetic details, among others.

That architectural software generates a three-dimensional image of the house, allowing architects to immerse themselves in the design, changing perspectives or experimenting with “what-if” modifications to determine the most effective solutions. An architect might even use virtual reality (VR) by plugging a headset into his computer and exploring every aspect of his design in the virtual world to finesse details such as the location of power outlets and downlights.

The main features of a building can now be set using artificial intelligence (AI) to map future trends in user and investor preferences for that specific type of house in that specific area, which appears to be extremely useful for both tenants and investors.

Sustainability and proptech

In the UK, a 2022 survey found that 77% of buyers are more likely to consider a green property as their next home. What’s more, a 2023 survey from MRI Software, encompassing 2’000 renters in the US, revealed that for two-thirds of them, a crucial factor in choosing a rental was the incorporation of "green practices" in the building. Remarkably, 40% of them also stated they would not even consider renting a property lacking such practices.

With this in mind, Switzerland, with its internationally renowned clean cities and unspoiled mountain scenery, seems very likely to have an even higher proportion of such environmentally-conscious tenants and buyers.

Proptech plays a significant role in creating and maintaining sustainability in housing. From the use of CAD at the design stage, through site mapping with camera drones and building information modeling (BIM) for project management – a modern home can be made sustainable from foundation to rooftop.

Once occupied, the “Internet of Things” (IoT) can be used to manage the home’s appliances and HVAC systems in the most energy-efficient manner. These facilities, as well as several others, are a feature of the James “digital concierge” app offered by Le Bijou.

It’s no exaggeration to say that, in residential development, investment, and management, sustainability and technology have become constant bedfellows. Nowadays, few investors search for a house by looking through the windows of a high street real estate agent’s office or driving from site to site. Not only is time saved by doing that search online, but also fuel and the environment.

Setting standards and gaining benefits

Swiss homebuyers, much like their counterparts in other developed nations, are increasingly prioritizing environmental factors – but that’s not all. There is also a strong financial incentive for adopting green practices in the design, construction, and management of houses.

For example, in the canton and city of Zurich, which has one of the world’s highest densities of sustainable buildings, green homes command a significant premium, estimated to range from a few percentage points to an impressive 26% on sales and 21% on rents.

 

Premium paid on sales and rents for green buildings in Zurich
Source: ResearchGate

The substantial financial advantage offered by green practices has prompted various Swiss organizations to formulate ratings and standards that ensure accuracy in the ecological claims of real estate developers and agents.

The three main entities overseeing this are the privately-owned Minergie and GEAK, along with the government-backed Swiss Sustainable Construction Standard (SNBS). Developers, investors, and homeowners can commission a survey from any – or even all – of these organizations, thus ensuring that their commitment to sustainability translates into tangible returns in both capital and income.

Moreover, this financial benefit derived from proptech-driven sustainability extends to the financing of real estate investments. Armed with one of these certification labels, your proposed investment will likely qualify for a green mortgage with a discounted interest rate.

Smart contracts

In the near future, another financial benefit will come from the implementation of smart contracts for the trading of assets. These are paperless online agreements on the blockchain.

They take hours to execute, rather than days or even weeks, and are subject to much lower fees than a traditional paper contract. This is because the blockchain holds all of the details related to title and previous ownership, making the expensive and time-consuming processes of verification of title documents and notarization unnecessary. Additionally, the contract can include the automatic charging of penalties if its terms are breached by any of the parties.

Smart contracts also enable the tokenization of real estate assets, whereby ownership is divided into smaller parcels so that those who can’t afford or do not want to pay for an entire building can still gain access to the benefits of residential real estate investment by purchasing tokens that represent a fractional interest.

In 2022, smart contracts accounted for a modest USD 1.75 billion, with few, if any, specifically related to real estate transactions. That said, their use is forecast to explode by 2030, with an expected worldwide total exceeding USD 9.85 billion. This represents an annual growth of roughly 24%; it seems likely that real estate will be a significant contributor to that.

Switzerland can lead the way

Switzerland is well-placed to be a pioneer. In August 2021, the Federal Act on the Adaptation of Federal Law to Developments in Distributed Ledger Technology, or the DLT Act, provided a legal framework for trading Swiss-listed securities on the blockchain. This formed the essential foundation for creating smart contracts and trading tokens.

Although the current law doesn’t cover tangible assets like property, this is expected to be addressed in the future, likely once Swiss real estate registers have been fully digitized, thereby enabling seamless integration with the blockchain. This process has already been completed in 22 of the nation’s 26 cantons.

In the meantime, fractionalization of real estate investment is already active in Switzerland, but can only be done by buying shares in a company (referred to as “participatory shareholding”) established to own the specific property, or through co-ownership of the building. These methods are, of course, paper-based and not at all related to proptech.

Conclusion

In summary, proptech is not a recent phenomenon. Like many other developments in digital technology, its roots go back to almost as far as the computers on which it was created. We are currently in a transitional phase, as we await the completion of such formative prerequisites as digital land registries – and, of course, the promulgation of the necessary laws and regulations – that will power the next stage.

These advancements will provide swift global access to various types of real estate investments, accessible on a smartphone, for investors of all kinds, in any country – with the highest possible standards of ease, transparency, and security.

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