Home Insights Opinion MENA’s proptech landscape: Primed for growth? The evolving landscape will soon change the way adopting an innovative digital business model in the real estate market is viewed by Zenah Alsaraeji November 6, 2021 The real estate industry is witnessing a notable shift towards digital transformation brought by proptech innovations across the globe. Many market players have recognised the power of technology in addressing the current challenges of the global pandemic and the various opportunities it also presents. Therefore, there has been an increasing interest in investing in tech-driven solutions geared by Artificial Intelligence (AI), big data, and cloud-based applications to optimise operations, as well as to engage with customers and enhance their experience. The Middle East and North Africa region (MENA) has been slower to adopt and invest in proptech solutions than Western Europe, the US and China, coupled with the economic fallout from Covid-19 and reprioritisation of spending. However, the region represents a great opportunity for growth and has shown a rise in activity since 2018 from investors and real estate companies alike. According to data from Crunchbase, proptech investments in MENA totalled over $294m since 2009. The majority of proptech startups and funds raised are based in the UAE, which is considered to be the hub for proptech innovations in the MENA region. Government support for digital transformation is likely to be the main contributor to Proptech growth in the country, with its recent announcement of a national programme to train 100,000 coders and set up 1,000 digital companies in a span of five years, and with aims to increase startup investment from Dhs1.5bn to Dhs4bn. Proptech enablers and alternative funding In addition to government initiatives, UAE and other countries in MENA have seen a surge in activity from private developers and investors. These act as Proptech ‘enablers’ by investing in or developing their in-house technology solutions to differentiate their products, gain competitive advantage and become market leaders in the region. While they are currently limited and in the maturity phase in the region, Proptech enablers are considered a successful alternative source of funding as they provide various benefits and growth opportunities for many startups trying to penetrate the market. Proptech enablers are expected to be the main driver for Proptech prosperity in MENA in the coming years. That said, listed below are several top alternative financing methods to traditional banking loans that Proptech startups could start seeking to launch and grow their businesses. 1. Venture capital (VCs) According to data from Crunchbase, proptech startups in the MENA region are funded mainly by Venture Capital (VC) funds. VCs are firms that invest in edge-cutting, emerging technology innovations that have great growth potential. They usually provide financial support at a variety of startup-funding stages and take equity in exchange for capital. Venture Capital enablers are becoming more common and have expressed increasing interest in Proptech investments in the region. For example, with its most recent announcement, Saudi Arabia-based investment firm, Watheeq Financial Services, has launched a $26.7m fund to invest in Proptech startups in the kingdom and the wider MENA region. 2. Startup accelerator programmes Accelerators invest in early-stage startups by offering a seed amount of money in exchange for equity in the company. It is typically a three to 12-month mentorship programme that provides a wide variety of benefits to international and national joiners, providing them with workspaces and the necessary tools to develop their skills and grow their business. Moreover, accelerator programmes offer a gateway for their ‘graduates’ to connect with potential investors and customers, providing them with growth opportunities through advanced publicity in the market. UAE-based Aldar Scale-Up is the most recent accelerator programme where it will choose up to five global startups to be awarded pilot projects. 3. Crowdfunding and peer-to-peer lending (P2P) Crowdfunding and P2P lending platforms such as Smart Crowd and Beehive in the UAE are quick alternative funding tools that allow startups to build a campaign for their business ideas and collect donations from various investors in exchange for certain benefits and rewards. Moreover, these funding methods provide professional marketing tools to promote projects that allow startups to engage with new investor types. Challenges to proptech innovations Like all other regions, there are unique sets of challenges to the growth of some proptech innovations in MENA. While some are considered macro-level challenges concerning country-wide regulatory capacity and require government support, others can be classified as micro-level barriers that concern organisation-wide operational capacity and client challenges and require management support. 1. Legal Frameworks As technology advances ahead of regulations, especially with the integration of new data systems and algorithms, concerns are raised on how best to regulate data and data ownership. Therefore, restrictive and complex legal frameworks are barriers for various startups seeking to adopt new Proptech innovations. The Proptech landscape in the region is not ripe nor transparent enough, and it is still young and fragmented. However, as Proptech is becoming more common in the area with many emerging innovations, regulators are developing a better understanding of these technologies and reducing the current regulatory concerns. 2. Management and operational structure Lack of long-term management commitment to a successful Proptech strategy is another hurdle that managers and leaders need to overcome to ensure business continuity. Effective change management support and timely communication of the digital strategy to teams can help avoid user resistance to change and aid in faster adoption of the technology within the organisation. This is when backed with a competent team of data and technology experts and setting the necessary in-house and/or external training programmes to upskill teams to the newly adopted technologies and systems. Therefore, effective governance and sufficient resource allocations are crucial in implementing a successful proptech strategy. 3. Data Privacy and security Integrating new applications with older systems may result in serious security vulnerabilities and threats. There are times where data security becomes weak as it goes through different maturity points during system upgrades, so organisations must be well equipped in the event of system breaches. Simply educating and training employees on cyberattacks and ways to handle them can be a practical first step to cybersecurity. Organisations can also embed robust encryption methods and solid firewall systems to protect customer information and prevent unauthorised connections. 4. Customer-centric technologies Proptech startups are often too invested in the technology itself and its features that they miss out on delivering it with a customer-centric perspective. Other companies are revenue-oriented and don’t put much effort into meeting customers’ expectations. This approach can quickly lead to product failure and would not meet long-term organisational goals. Piloting projects is crucial in identifying products’ strengths and weaknesses and can help organisations reduce gaps and create user-friendly apps. While Proptech in MENA is still lagging compared to global investment figures, new initiatives and programmes are expected to increase momentum in the region in the coming years. The quickly evolving landscape will soon change the way adopting an innovative digital business model in the real estate market is viewed – from just an added-value service to a necessity for business success and continuity. This presents an excellent opportunity for startups to differentiate their offerings and gain a competitive advantage to attract investments by creating adaptable and upgraded technology as the field matures. Zenah Alsaraeji is a research analyst at JLL MENA Tags Accelerator funding Proptech Real Estate startups 0 Comments You might also like Scaling new heights: How AIX is redefining global investment opportunities Aldar unveils new luxe villa community on Yas island Most influential Indians in the region 2024 Cast your vote now for the Gulf Business Awards 2024 nominees