Rewriting of real estate rules
By Jatin Ondhia, co-founder and CEO of Shojin Real Estate Partners
This is not a surprise for the real estate investment of the super-rich: it is often very lucrative. But for most, the option just isn’t on the table.
Even the prospect of owning your own home seems out of reach for many – let alone having extra money to invest in other properties. But while buying a property is often out of reach due to the need for a large initial cash deposit, that doesn’t have to apply to investing. Your book is as good as anyone’s.
Here, I’ll explain how proptech and the digitalization of the real estate industry can help transform the way we interact with real estate markets – and rewrite the rules of real estate for the benefit of all.
How the status quo fails the majority
Most people have a very understandable desire to own where they live. In the long run, paying off a mortgage makes much more sense financially than paying rent. But we all know how hard it is to get on the property ladder. Years of rising house prices mean that deposit requirements are exorbitant, and those unlucky to inherit cash need to save and save.
As a result, people rent or stay with their families longer. For a while, the only respite was that – once you were there – climbing the ranks was (relatively) simple. Not anymore.
A study by the British bank Halifax has found that value gaps – the extra money you need to raise to move to the next level, for example from an apartment to a semi-detached house – have spread across the board. To explain this, the bank lists a confluence of factors ranging from the pandemic and Brexit to inflation and supply chain issues. The Gist: The Housing Ladder now looks more like a set of circus trapeze bars.
The situation is no better for part-time owners. Buy-to-let was once an accessible way for the middle class to put their savings into a tangible asset and grow their money, and was strongly encouraged in the 1990s by successive governments. Today it is a shadow of itself. A flood of tax and regulatory changes in recent years have made it too expensive and too risky for most part-timers – leaving it to big rental agents and real estate moguls.
The root causes of these problems are complex and can only be resolved by government policy makers. But there is good news. We can use technology and innovative financing to ensure that more people benefit from real estate markets.
Unleashing real estate investing for the masses
In my opinion, we do not have to subscribe to a status quo dominated by the banks and the super-rich. It’s possible for all of us to have a piece of the pie, but there are two main blockers.
One is the layer of bureaucracy. Those who want to invest in real estate development must jump through a litany of legal hurdles and certifications that are simply too expensive or complicated for most to acquire.
But as has already happened in many other sectors, we can use pre-certified digital platforms to “remove the middleman”. Where digital platforms take on the burden of evaluating and validating investments as well as meeting regulatory requirements, investors can sit comfortably knowing that their money is being used wisely. It also means that investors can take more advantage of all the profits, because there are fewer paying intermediaries.
The main barrier to accessing real estate investment is, of course, the financial barrier to entry. Investing in real estate is often too expensive for most. But there is a solution: fractional investing, which splits the cost (and later, the profits) of an asset among individual investors.
In practice, an investment platform can pool funds from a group of investors before investing in a specific property or development project that would otherwise be inaccessible to a single investor.
Why stop at the property?
Property is not the only area to which we can apply these lessons. Fine art, wine, luxury cars, pre-IPO – today it’s all the domain of the super-rich. But there is no good reason for this other than the fact that they often have a very high barrier to entry. Fractional investing and digital platforms mean anyone can invest.
The big question mark concerns the regulations. Like any thriving new industry, we need sensible, informed regulation that protects individuals, businesses and markets alike. Our industry has emerged relatively quickly, so regulators lack experience with it – there simply aren’t “perpetuates” in proptech the way there are in banking, for example.
The workaround is for regulators to get closer to companies. Listen, discuss and engage with key industry players – and businesses need to do the same. By working together, we can build a strong foundation for a rapidly growing industry – and can make ownership and other exclusive investments more accessible to everyone.
A new state of affairs
There are no two ways to achieve this: the UK is in the throes of a housing crisis and tackling this problem is a gargantuan challenge. That’s certainly out of reach for a single industry to solve. But what we can do is open a gap in the market: through technology and innovative financing, we can facilitate access for more people.
In the past, most of us were simply not allowed to play the game. Real estate investing has remained the preserve of the super-rich. Now we can use technology to rewrite the rulebook.