Why proptech needs fintech to expand in Southeast Asia

Despite the strong growth of real estate markets in the region, proptech startups are still finding their feet in Southeast Asia. Fintech might hold the key to revolutionising ASEAN’s real estate markets.

By Preetam Kaushik

We live in an age of technology buzzwords. First, there are the so-called “deep techs” like the internet of things (IoT), artificial intelligence (AI), Big Data, and Blockchain. Then there are those emergent economic fields created by these technological breakthroughs—like ASEAN’s rapidly expanding fintech industry.

While fintech has received a lot of attention in the region in recent years, another related startup field has been slowly gaining momentum; proptech.

Proptech is simply the convergence between digital technology and the real estate business. The term can refer to any technology (or group of technologies) that affect the various processes of the property market.

The proptech scene in Southeast Asia is bustling

A lot of the action in the global proptech sector is taking place in the Asia-Pacific region. According to a report by Jones Lang LaSalle (JLL) published in 2017, 179 startups in Asia accounted for 60% of global proptech investment between 2013 and 2017.

That figure, which stood at US$4.8 billion, is only expected to grow as emerging markets in India, China, and the ASEAN region continue to witness sustained demand.

Source: JLL

In terms of size, the ASEAN market is behind the regional juggernauts of India and China. But the region is catching up in terms of the number of startups and deals struck. JLL estimates there are 786 ASEAN proptech startups, with 36 deals worth US$738 million. 

One of the earliest movers in the Asian proptech scene emerged from Singapore in 2007. PropertyGuru has since gone from strength to strength, raising US$440 million from investors and has ambitions for regional expansion.

Singapore is ahead of the curve in the region with its Smart Nation Initiative. The initiative includes an industry transformation roadmap for real estate in Singapore, with a heavy focus on streamlining real estate transactions using proptech.

Other ASEAN startups are also showing a lot of promise. Notable regional startups include Revolution Precrafted (Phillippines), EV Hive (Indonesia), and i2Property (Malaysia).

There is still, a long way to go for proptech in ASEAN

Most of the startups in the sector are focused on the vertical closest to the end consumer – brokerage and leasing. With increasing urbanization and a young population, there is more demand for housing and workspaces across Southeast Asia, setting the scene for proptech to thrive.

Most of the startups in the sector are focused on the vertical closest to the end consumer – brokerage and leasing. With increasing urbanization and a young population, there is more demand for housing and workspaces across Southeast Asia, setting the scene for proptech to thrive.

But buying or renting a house is not as simple as hailing a cab or using an e-wallet for online shopping. The financial costs are on another level altogether. Besides, millennials across the world are not yet in the financial position to buy property, at least for the time being. Then there are also the social and cultural aspects of the transaction, which in these parts is based heavily on individual trust. 

Limited access to credit and financing is endemic to emerging markets across ASEAN. Proptech will probably need more time to influence the real estate market in Southeast Asia, despite PwC forecasts of strong growth in the region. For proptech to truly explode, it will have to rely on other startup ecosystems.

There is a natural synergy between fintech and proptech

The links between the finance and real estate markets run deep. The latter’s growth is often constrained by the availability of credit to consumers. The same parallel can be drawn between proptech and fintech.

Proptech cannot grow without the wider adoption of technologies in the finance sector. It relies on fintech’s ability to bring lines of credit to a new generation of aspiring homeowners.

However, residential properties are only one side of the equation. The massive growth of startup ecosystems has opened new possibilities for expansion in the commercial real estate sector.

The ASEAN region is a hotbed for fintech startups. Consumers in this segment are more likely to embrace new tech in their search for office space. We are witnessing this with the growth of local proptech startups like EV Hive, which cater exclusively to other startups and other enterprises looking for shared workspaces.

To break out of the commercial real estate sector and make inroads in the residential market, proptech needs to gain the trust of conservative real estate consumers in the region.

Real estate fintech blurs the lines between proptech and fintech

For proptech startups to grow in a region afflicted by a perennial shortage of credit, they need to combine elements of fintech into their service. The US market has already seen several efforts in this direction in 2019, with proptech startups offering access to mortgage finance, bridge loans, and other value-added financial services to real estate customers.  

As Pauline Chong of Cento Ventures explains, there are multiple bottlenecks across the Asian real estate markets that prevent the mass adoption of proptech. These include messy regulations, information asymmetry, and lack of financing.

They are all issues that proptech cannot tackle on its own. Real Estate fintech startups that make use of advanced technologies like blockchain could provide the solution – a common online digital platform that brings the sellers, buyers, financial institutions, and other investors together.

Two Singapore-based startups, FundPlaces and Reidao, are pioneers in this. They use blockchain technology to create “tokens,” which can be bought by investors for diverse real estate transactions. Using these tokens instead of bulk cash helps liquidity in the sector, giving more flexibility to investors while simultaneously ensuring maximum transparency and accountability.

Proptech has a long, bright future ahead in ASEAN

The technology is out there waiting to be harnessed. It just needs positive nurturing from governments and venture capital funding to get things started. And there are such initiatives slowly taking root across the region, most notably in Singapore and Malaysia.

There is no doubt that Proptech in ASEAN is here for the long haul. The combination of a young, upwardly mobile population and a rapidly expanding fintech sector should provide the engine for growth.