Regulatory frameworks need to keep pace with proptech expansion

The real estate industry is notorious for being behind the latest technological curve, but as innovation explodes and the industry’s big guns jump in, it has become incumbent on industry participants to get up to speed on expanding regulatory policies and, more importantly, social expectations tied to upcoming technological waves.

At risk is privacy – on nearly every level of the industry’s playing field. Internal proprietary information, or the ‘secret sauce’ real estate owners and investors believe is what makes them tick, is a priority. But there is a bevy of other priorities, ranging from data collection, video intelligence and data storage. Protecting privacy is what instills trust in the end user, whether that is the real estate consumer or owners and investors.

As technology constantly evolves, so too do the regulatory and social structures around it, albeit relatively slowly in comparison. Real estate owners and investors can continue to expect these structures to remain dynamic for the foreseeable future. 

Privacy guidelines are already in place, such as California’s Privacy Rights Act and Europe’s General Data Protection Act. Already at least 10 other US states are bandying about new regulations for what law firm Skadden, Arps, Slate, Meagher & Flom calls the US’s “patchwork privacy landscape.” Delaware was the most recent state to ink new privacy guidelines in mid-September. It remains to be seen, however, whether these measures will be enough against the speed of technological innovation. 

“There is that challenge,” says Pippa Akem, senior manager in the risk assurance and advisory services group at Armanino, an accounting agnd business consultancy. “The law is not keeping pace with the innovation that is going on out there across the industry. It takes a while for different political perspectives to have a meeting of minds, debate the relevant issue, identify the risk and to eventually lead to data protection. There will be some lag time between the law and how quickly innovations occur.”

This gap may only get wider based on the proptech predictions ahead and how those advances might impact social norms of today. According to a report published in August by market research firm Future Market Insights (FMI), AI and virtual reality are “simply the tip of the iceberg” when discussing the technical progress of proptech, further stating that the real estate industry is “not immune to technological upheaval.” 

According to FMI’s calculations, the proptech market is on the verge of exploding, developing at a healthy 16.8 percent compound annual growth rate overall by 2032. Market share in the US is on track to reach $86.5 billion within the same time frame with a CAGR of 16 percent, while the UK is expected to achieve a CAGR of 17.1 percent.

With proptech’s expected pipeline growth, the private real estate industry can expect technological transformation to continue. According to Jeanne Casey, the global head of proptech and innovation at Nuveen, the industry is already in tune.

“Real estate has become savvier and more nuanced in their understanding of the downstream impact of the tech decisions at the owner and investor level, as well as consumer trends around that and the privacy issues,” Casey says.

Casey outlines how technological decisions impact end occupants in a series of factors. First, there are the decisions around internal data – in particular the direct customer data that is the most direct interaction the real estate professional would have with that data set. External data, on the other hand, are unique data sets that a vendor provides, such as location intelligence and consumer foot traffic that make for better efficiency for operations such as temperature and lighting control.

Staying in tune

There is also transaction or asset management tech, where real estate professionals are the end users interacting with a third-party proptech firm, Casey explains. At asset level proptech, there are data sets that real estate owners and investors are not directly interacting with the data, but residents, tenants and property managers are. According to Casey, these are among the key areas that will require increased regulatory guidance as consumer awareness grows. 

Casey uses video intelligence as an example sector for regulatory issues and social frameworks that need to be addressed. “There are many  relevant conversations going on between customers and vendors around these issues currently,” Casey says.

Consider video intelligence for security cameras. “That hits a lot of big themes – AI, facial recognition and biometrics, for example,” Casey says. When facial recognition matches a specific human, this triggers a whole set of issues around privacy and data.

Armanino’s Akem agrees and worries too about the mountain of data that “is being stored somewhere, anywhere, everywhere,” and how the process of data storing is ripe for change. Investors want to access such data to obtain insight on operational performance, which leads to more eyes on a database that may not be properly protected.

Akem believes companies need to take a closer look at what information they are gathering and how they are utilizing it before regulators – and consumers – step in and potentially force unwanted actions to be taken. Moreover, real estate investors and companies are opening themselves up to risks that could lead to lengthy and expensive class-action lawsuits.

Akem recommends companies get ahead of regulation with internal training that will be crucial to building trust with customers. “When it comes to the social framework, for companies it is very basic and starts with knowing what you are collecting, why you are collecting and identifying the basic controls to put in place to mitigate issues around unauthorized access,” she says. 

“We need to make sure companies understand they should not be collecting information they do not need; many collect and retain that information forever.”