Emerging markets are ripe for disruption

Low-income, high-growth economies could soon benefit from the digital transformation of real estate and housing.

Emerging markets present a wide canvas of opportunities for proptech investors. Marked by rapidly growing urban populations, housing shortages, low penetration of financial services and significant market inefficiencies, rapidly developing economies are perfectly suited to technological innovation.

One such example is Latin America. In recent years, the region has proved particularly attractive to investors as the default real estate journey is often plagued by a medley of inefficiencies and time-consuming processes. Landlords frequently grapple with fragmented experiences when attempting to sell or rent properties, often taking many months, while tenants struggle to find fitting units.

“Several factors underscore Latin America’s appeal to proptech investors,” says Rodrigo Costa, partner at Softbank’s Latin America Fund. “Firstly, real estate plays a significant role in an economy that has a GDP approaching $6 trillion and is home to over 600 million people. But perhaps more importantly, there are a set of problems and challenges that are unique to Latin America and present entrepreneurs with an extraordinary opportunity for innovation.”

Real estate professionals in Latin America must contend with a disjointed and isolated pool of information as there is no unified database akin to the multiple listing service (MLS) commonly used in more developed markets.

“Incumbents have not been able to address these issues, but we see entrepreneurs using technology to build products and experiences that can solve these problems,” adds Costa. “Some of the leading businesses in the space are constructing truly unique end to end experiences for stakeholders.”

Softbank’s Latin America Fund is currently invested in three Latin American proptech firms: Bogota-based Habi, which helps middle-class customers buy and sell homes; Brazilian property search platform Loft; and Brazilian peer QuintoAndar, which simplifies rental real estate for landlords and renters. In 2022, Habi reached unicorn status after securing $200 million in a Series C funding round, while Loft attracted another $100 million in investment in August.

Sale and rental marketplaces and instant buyers have historically attracted the most capital and entrepreneurial efforts in proptech across Latin America. Financing and transactions have also previously not been well served by banks in the region, presenting further opportunities for private capital. “The scale of the [real estate] market and its problems, and by extension the potential rewards, is immense,” stresses Costa.

Playing catchup

Southeast Asia is another region attracting proptech investment. Capital has historically lagged in Latin America, and the region is even further behind its more developed East Asian neighbors, however Southeast Asia boasts a young and booming tech-savvy demographic. The International Monetary Fund estimates the total population at just shy of 680 million, with internet penetration reaching around 80 percent, according to the Association of Southeast Asian Nations.

“A huge chunk of that [proportion] is from Indonesia,” says Junghans Tasani, co-founder and chief executive of proptech company Pashouses, backed by venture capital firm QED Investors. “The opportunity for innovation varies between countries, so while Singapore has the most advanced infrastructure there is so much inefficiency in Indonesia that you have the opportunity to transform the market.”

“Asia remains a dynamic market for proptech due to a number of key factors, including the level of new development, ongoing urbanisation and general demographics”

Jonathan Hannam,
Taronga Ventures

The Asian archipelago is the world’s fourth most populous nation and two-thirds of its population are connected to the internet, according to data from The World Bank. “Indonesia has one of the highest urbanisation rates in the world, and there is huge demand for internet services,” explains Tasani. “The capital, Jakarta, is a city of more than 30 million people.”

Today, the depth of Indonesia’s property market remains shallow, and mortgage penetration languishes in the low single digits – one of the lowest in Southeast Asia. Platforms that can simplify and streamline access to mortgages are primed to have a profound impact on the sector. This has been showcased in Latin American in recent years by home equity models, which are one of that region’s fastest growing real estate segments.

However, challenges remain. Indonesia faces a housing backlog and, as with many emerging markets, the lack of data availability presents a barrier to building consumer trust. “Those that can provide reliable information and become a source of truth stand to become the market standard,” says Tasani.

Opportunity knocks

According to self-regulatory body National Real Estate Development Council, India’s real estate market is projected to more than double by the end of decade, increasing from $477 billion in 2022 to more than $1 trillion by 2030. That figure is expected to grow to almost $6 trillion by 2047, the country’s centenary year of independence.

India’s proptech scene is beginning to steal a march on the competition. With a population of more than 1.2 billion, the Indian government estimates that proptech firms account for over 6 percent of all domestic start-ups. Government policies such as the 100 Smart Cities Mission, which promotes sustainable and data-driven core infrastructure for 100 cities, and India’s digital campaign, Digital India, which aims to increase internet connectivity and access across South Asia’s largest economy, have played significant roles in expanding the footprint of the sector.

In March this year, Indian proptech unicorn NoBroker secured funding from Google’s $10 billion India Digitalization Fund. The tech giant joined a medley of other investors that have injected capital into the start-up since it was first founded in 2014. The app-based platform offers users residential and commercial properties in six Indian cities as well as other financial services.

Many other start-ups are focusing on improving the efficiency and cost of construction materials. In January, online construction marketplace Brick&Bolt raised $10 million from several global venture capital firms. The firm offers end-to-end services for customers looking to design and build their own homes, using AI to manage work schedules and construction

“Asia remains a dynamic market for proptech due to a number of key factors, including the level of new development, ongoing urbanisation and general demographics,” says Jonathan Hannam, co-founder and managing partner at real estate technology investor Taronga Ventures. “What we are seeing is that there is a willingness and openness to technology, and as this is a highly competitive market, technology is often used as a key differentiator to drive customer interest.”