Investors show confidence in Proptech

Photo: Chris Willemsen
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SETTING new records is becoming routine for the property technology market with US$1.2 billion raised in August. At the same time, 69% of banks around the world are being impacted by Blockchain and whilst the Reserve Bank of Australia does not believe cryptocurrency is “currency”, its global peers are either planning to hold cryptos on their balance sheet or establish their own.

According to RETech, US$1.172 billion was invested in 40 companies in August globally.

RETech said the sudden spike was spurred on by gains in late-stage venture capital dollar volume and debt financing.

Total venture capital investments (deal volume) in real estate tech companies increased by nearly 17.7% from July 2018 to August 2018, while total funded real estate tech startups (dollar volume) increased by nearly 78% from US$659.96 million.

Not surprisingly, WeWork topped the charts again with funding of US$1 billion. The coworking space monolith reportedly has a market capitalisation of US$40 billion, that is the combined market caps of Australian real estate investment trusts Goodman, Mirvac, Dexus and Stockland.

The single month of August figure is just shy of the US$1.4 billion raised in the first quarter of 2018.

Whilst the proptech sector continues to accelerate, a recent report by sustainability consultants Morphosis warns that the digitalisation of real estate is a double-edged sword, and innovators need to focus on the risks as much as they do on the benefits.

“Alongside the exciting and valuable benefits that digitalisation brings us, there are many potentially serious risks that need careful consideration by our businesses, governments and, most importantly, the community. Examples include privacy, job automation, cybersecurity and electronic waste. If we don’t address the risks, we may not get to enjoy the benefits,” report author Simon Carter said.

“Digitalisation is a mega-trend that sits alongside urbanisation, globalisation, climate change and the others that are reshaping our cities, our society, and ultimately, our species.” Carter added.

The real estate market is not unique, the financial services sector is also witnessing disruption in the form of Blockchain and the shifting landscape of regulation, payments, cryptocurrencies, and cybersecurity.

According to legal firm DLA Piper, Blockchain is on the agenda for 50% of investment banks and 32% of retails banks. 69% of retail and investment banks feel they are being impacted by disruption.

UK advisory company TeamBlockchain CEO and founder Jonny Fry said the report highlights the considerable interest in investing in payments technology, an area that has attracted the attention of blockchain and crypto currencies.

“One such example is the current disruption of the SWIFT system, a leader in cross-border payments, by Ripple. More than 100 banks have signed up with the blockchain based challenger.

“It is not surprising therefore to see that Blockchain is on the agenda for 50% of investment banks and 32% of retails banks. Those are the projects reported in the media and one cannot help wondering whether these numbers aren’t in fact higher. Some banks clearly see opportunities.” Fry said.

One surprising finding in the report was that 31% of financial services firms believe central banks will hold cryptos on their balance sheet in the next five years. 17% of asset managers have or are considering a strategy to invest in cryptos, which illustrates how fast the market is evolving.

The report also found 18% expect central banks to establish their own cryptocurrency.

Barclays’ general counsel for strategy and operations group Stephen Albrecht said one area the bank is particularly interested in is the utility settlement coin (USC), which is a blockchain application that will link banks to central banks.

“This involves moving funds between banks and central banks using a blockchain that moves tokens around, rather than settling cash.

“So it is blockchain technology, but unlike bitcoin, which is distributed and is everywhere, it is a closed environment where parties are constantly moving money around. It is much more efficient to just do it all on a blockchain solution with tokens that are backed by actual cash deposits.”

Standard Chartered Bank head of legal John Ho said it is looking very closely at using blockchain for smart contracts.

“But the most innovative smart contracts are embedded in a coded fashion, so you don’t have words that say, for example, that one party will pay another a certain amount; it’s in programming language that performs the contract entirely in the code.

“In the event of a dispute or claim, is that code admissible in court as a contract? They are recognized as such in some countries, such as the US; but in others, there are no laws about this, so it’s unclear whether it’s enforceable. This raises questions about their use,”

Ho said there are some pilots underway in Australia, trialling certain smart contracts and bond issues using blockchain.

“However, take-up in the FS sector remains generally low, with some detractors seeing blockchain technology as a solution in search of a problem which can often be fixed via other means.” Ho noted.

The DLA Piper report found 33% of firms have engaged with FinTech firms and 55% intend to so within the next two years, although 74% cite regulation and compliance as a factor in restricting greater adoption of technology and new business models, and 82% of firms are worried about cyber security.

Australian Property Journal

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