The role of PropTech in shaping India’s growth story

Figure this.About 35 crore people, or 350 million people, will be shifting to the urban areas in India over the next few years. This is equivalent to almost two New York cities getting created in India every year. Who would have thought that PropTech would act as a disruptive force for an industry like real estate, which is not commonly associated with technology?

The latest episode of Brick by Byte, presented byMint in partnership with Nucleus Office Parks, saw Vipul Roongta, Managing Director and Chief Executive Officer (CEO) at HDFC Capital Advisors, shed light on how PropTech start-ups are making a difference in the real estate space.

The discussion began with some commonly used cases of PropTech and whether it can lead to an easier discovery of land titles to start with. “Giving a context of only land titles to PropTech would probably be unfair to what I think would be one of the biggest opportunities in the start-up space,” he said. Watch the full episode here,

The Indian PropTech ecosystem

The PropTech ecosystem in India is very vast, with about 1,500 start-ups operating in this space. The country has more than 80 million Micro, Small and Medium Enterprises (MSMEs), and almost one-third of these can directly be linked to the real estate industry. “About 152 items go into making one house. The biggest proxy to GDP growth is housing because one house requires and gives an impetus to so many other industries,” he said.

As a consumer, one doesn’t associate start-ups with the real estate space. But, this is not entirely true. Roongta spoke about how consumer-facing apps have the maximum funding – billions of dollars have been spent on the customer discovery of a home. “There is enough and more happening on the supply side, too. One more segment that I am personally very excited about is the entire PMC ecosystem. Project management is the need of the hour in the real estate industry today. Contracting is a big problem, and we need to have more efficient drivers there. And digital technology makes a huge difference,” he added.

In the post-sales domain, technologies like CRM, facility management, and parking management are also getting digitised.

Broadly speaking, PropTech companies can be divided into two parts: consumer-facing in the B2B or B2C space and supply-facing in the B2B space. From a business perspective – like for a developer in the real estate industry, technological innovations can add to the efficiency of the entire construction process. For developers, technological innovations go beyond just land records. Today, technology is changing aspects like design, construction technology, post-construction sales and possession, etc.

“The government is doing a great job in putting together the entire legal framework for land titles. A fair number of states have digitised their land records, which has been the case for the longest time. That has made the entire title aspect much cleaner. There is a whole ecosystem now that exists digitally, including tracing notices, etc.” he said.

Selecting the right start-ups

But, selecting the start-ups to back is a mammoth task in itself. “A disturbing trend we are seeing is that no genuine IPs are being created. Many start-ups are just copy-pasting successful models, maybe in some other geographies. We look for genuine technologies, something which is big, very innovative, and as an IP,” he said.

HDFC Capital widened its SOW from being a private equity fund to launching an affordable real estate technology platform recently. Talking about how this diversification came about, Roongta said: “We are a private equity fund. Our job is to raise capital and deploy it. Right now, we are focused on residential and mixed-use, with sprinklings of commercial and retail. But, one of the things we felt is that the counterparty we are lending to or putting equity investments with is too enmeshed in their entire ecosystem. It is very difficult for them to start searching for technology-driven efficiency drivers that form part of the PropTech ecosystem.”

This led HDFC Capital, a 4.5-million-dollar fund, to use a small portion of its corpus to set up HARD. The aim was to give money and, more importantly, work to start-ups, which will add efficiency to a specific leg of the construction cycle.

“With so much noise, we felt that the one thing that is missing is credibility to these start-ups. So, our objective is not to do a fund, or a VC fund focussed on PropTech. We want to use the HARD platform to take slow, single-digit stakesto give credibility to what we think is a good solution, give it some kind of a stamp of our brand and then nudge them towards the developer ecosystem,” he said.

Today, they are working backwards from the problem to find a solution. HARDbrings together all the stakeholders in the ecosystem, including academia, both domestic and international, and representatives from the industry, which includes developers, the vendor ecosystem like contractors and other vendors that are feeding into the developer industry, the finance industry, which includes not only HDFC but other big players like banks and other funds. Through events like ecothons, they understand real problems that the industry is facing and then seek out workable solutions.

Making an impact

One of the biggest banes of the sector has been meeting construction timelines, especially when it comes to affordable housing. Roongta spoke about PropTech’s role in delivering affordable projects on time, financing them, etc.

“Better planning, rather than technology, can actually help me cut a lot of timelines in construction. Having said that, I think the big driver of cutting off time, especially affordable and middle-income housing, is standardisation, a pre-designed ecosystem and scale. Actually, with scale, I can drive down a lot of costs and get the right kind of contractors on the table,” he said.

Premiumisation is the new buzzword in the real estate industry. Roongta feels that there is demand for all kinds of units, not just premium ones. “There is a 1:100 demand for every unit. The industry is concerned that it is not because demand has gone down but the supply of affordable units has gone down. That, to me, is the biggest problem. All you need is scale so that you can bring your cost of production down,” he said.

Roongta was optimistic about the growth of investments in this space. Looking at the future, he said investments in the PropTech space are only going to grow. “Today, we have about four unicorns in the true-blue real estate space. I see this number go up to at least 15-20 over the next 5-6 years. This is because real estate as a sector is rapidly growing. Today, real estate is only about 8% of GDP. In China, it is almost 30%. India is expected to reach the 14-15% mark in the next 5-6 years, and PropTech companies will have a role to play,” he concluded.

Disclaimer: Mint Brick by Byte is an editorial series in partnership with Nucleus Office Parks.

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