Building and owning a home has been part of human life since civilization itself existed. But over the past few decades, the lens through which we view real estate and property development has slowly blurred.
It is not far-fetched to say that today, as technology increasingly permeates real estate development and housing, few other than those working in the sector can truly pinpoint what is happening in the rapidly evolving world of proptech.
To lift that veil, towards the end of 2022 we decided to take an in-depth look at the trends and technologies in real estate development and construction. We spoke to a variety of investors about finance-oriented proptech and the move towards greener proptech.
But since we can’t get a full picture of the proptech space without delving into the technology driving so much of the change, we have Momei Qu, Managing Director at PSP Growth, and AJ Malhotra, Managing Director at Insight Partners, interviewed. They spoke at length about the latest technology in property and housing development, where the next disruption is likely to happen, and other trends.
(Editor’s Note: This interview has been edited slightly for length and clarity.)
TC: There is a lot of overlap between construction engineering and proptech. What would you say is the difference between the two? And where do they overlap?
Momei Qu: We didn’t coin that term, but we like to use “built world” or “built environment” to encompass both categories. Traditionally we have referred to construction engineering as solutions that touch things while they are being built (i.e. site, field service technology targeting AEC as end customers) and proptech as solutions that touch things after they are already built (i.e., tenant engagement for office buildings, property management for rental properties).
They overlap when there is something valuable that applies to the entire life cycle – building data around plumbing that can be used for facility management, or equipping a unit as a “smart home” during the construction phase.
AJ Malhotra: I think of construction tech as a subset or segment of proptech. In my definition, proptech is any technology that touches the entire lifecycle of a physical structure, including land acquisition, structural design, construction, financing, leasing, property management, insurance, and repair.
Structural engineering would fall into the buckets of planning and execution in the examples I just gave, and might also touch on financing (for things like home loans) and repairs.
What is your investment thesis for proptech in 2023? What growth do you expect in the industry?
Qu: The sector was disproportionately hurt in some respects more than others in 2022 by the broader tech market reset. Several proptech companies have been valued over $1 billion in private funding or through SPAC, and virtually none of them have maintained a valuation over $1 billion today.
I think part of what made it worse is the double whammy of generally inflated multiples in technology/software coupled with the fact that many proptech companies have a physical component that shouldn’t have allowed them to be of to be valued as a software company in the first place .
I think that in 2023, investors and companies will exercise a lot more discipline and probably won’t raise too much capital until they really find a product and sales move that works. As growth-stage investors, we typically don’t get involved until we see significant traction anyway, and if they can show momentum and traction in that environment, we’re more than happy to get involved on a large scale.
Malhotra: I think proptech will certainly be challenged in 2023, mainly for two reasons.