For reasons that are not always entirely obvious, the pervasion of tech-based change has happened at a very different rate in different industries and sectors. Sometimes it’s a case of practicality. Some industries have been inherently easier to automate or develop tech-based improvements for than others, or for legacy systems to be changed. Sometimes it’s a case of hard cash and certain industries necessitate newcomers to be awash with it to be able to practically compete with incumbents.
Banking is the obvious example here with regulators demanding a level of capitalisation that means the barriers to entry are extremely high. Simply having better tech doesn’t cut the mustard. Other sectors have a powerful political lobby successfully maintaining barriers that make it difficult for new, tech-powered upstarts to gain a foothold. And finally, there is the consumer psychology factor. In some markets the dominant consumer/customer demographic is simply older and more resistant to change.
In the majority of cases, a combination of these factors are at play in sectors where the infiltration of tech and tech-focused start-ups has proven slower. That holds true for the property market. However, US private equity firm Silver Lake Partner’s recent £2.2 billion acquisition of online property portals Zoopla and Prime Location, is a strong signal things are about to change. Silver Lake’s investment mandate is technology and technology-enabled industries. One of the biggest tech investors in the world, the company has serious financial clout. It has also paid serious money to complete the deal.
A merger between online property portal peers eMoov and Tepilo has also been mooted. It makes sense. Alone, neither have the existing market share or depth of pockets to seriously challenge Salt Lake-financed Zoopla and Prime Location. By combining forces, they might just make a fight of it.
Zoopla and its rivals are well known brands and a large percentage of Brits who have bought, sold or explored the idea of buying or selling a property in recent years will have used the portals. However, the majority of the market still uses them for research purposes only – familiarising themselves with prices and offers. The market for online-only real estate agencies and portals grew 60% last year according to marketing consultants TwentyCi. However, online-only still only accounted for 6% of actual sales.
We can expect that to change. Silver Lake did not pay £2.2 billion for ZPG because of their share of the 6%. They paid it to be in the position to make an assault on the remaining 94%. That’s where, if they crack it and they have the expertise and finance to do so, they’ll see a return on their investment. And you don’t become one of the biggest private equity tech investors in the world without regularly seeing a return on investment.
Traditional real estate agencies will, or should be, viewing the ZPG acquisition with trepidation. So, what are the tech-powered developments that we can expect to disrupt the way properties are bought and sold in the UK over the next few years?
Firstly, and in the shortest term, online only real estate agents can be expected to grow their UK market share significantly and quickly beyond the current 6%. Under Silver Lake-ownership, Zoopla and Prime Location can be expected to initiate a marketing drive and develop the transaction side of the business. Online-only real estate agencies tend to have a flat-fee model rather than a percentage of the final sales price. That makes them significantly cheaper, especially for transactions involving more expensive properties. Lower fees are supported by a leaner structure involving less staff, agents, office space and expensively visible prime high street shop fronts.
The latest AI technology advancements, and the fact much of the work involved is repetitive and so ideal for robots, means mortgages and conveyancing are expected to be the next sections of the real estate sector to be automated. They are also extremely valuable industries so there is plenty of venture capital hungry for a piece of those pies. AI is also certain to be more efficient at finding the best mortgage deals for buyers than human advisors are.
Industry analysts believe the value of the property market also means it is only a matter of time before the real tech giants start to move in. The volume of data Facebook has on its users means the social media platform can know with much greater accuracy than a bank or building society what level of mortgage users can afford.
Likewise, Google and Amazon. Bricks and mortar estate agents should be nervous. The tech storm is poised to rip through their industry domination much sooner and more completely than most of them expect or are close to being ready to defend themselves against.Risk Warning:
Please remember that financial investments may rise or fall and past performance does not guarantee future performance in respect of income or capital growth; you may not get back the amount you invested.
There is no obligation to purchase anything but, if you decide to do so, you are strongly advised to consult a professional adviser before making any investment decisions.