The proptech landscape of the MENA region: ready for growth?
The real estate sector is witnessing a notable evolution towards the digital transformation brought about by proptech innovations around the world. Many market players have recognized the power of technology to meet the current challenges of the global pandemic and the various opportunities it presents as well. Therefore, there has been growing interest in investing in technology solutions focused on artificial intelligence (AI), big data and cloud-based applications to optimize operations, as well as to interact with customers and improve their experience.
The Middle East and North Africa (MENA) region has been slower to adopt and invest in proptech solutions than Western Europe, the United States and China, coupled with the economic fallout from Covid-19 and the redefining spending priorities. However, the region represents a great opportunity for growth and has seen an increase in activity since 2018 from both investors and real estate companies.
According to data from Crunchbase, proptech investments in the MENA region have totaled more than $ 294 million since 2009. The majority of proptech startups and funds raised are based in the United Arab Emirates, which is considered the hub of proptech innovations. in the MENA region. Government support for digital transformation is likely to be the biggest contributor to Proptech’s growth in the country, with its recent announcement of a nationwide program to train 100,000 coders and create 1,000 digital businesses in the space of five years, and with the aim of increasing the start-up investment from Dhs1.5bn to Dhs4bn.
Catalysts for proptech and alternative financing
In addition to government initiatives, the UAE and other countries in the MENA region have seen an increase in the activity of developers and private investors. These act as “enablers” of Proptech by investing or developing their internal technological solutions to differentiate their products, gain a competitive advantage and become market leaders in the region.
Although currently small and mature in the region, Proptech facilitators are seen as an effective alternative source of funding, as they provide various benefits and growth opportunities for many startups trying to enter the market. The catalysts of Proptech are expected to be the main driver for the prosperity of Proptech in the MENA region in the years to come. That said, below are several alternative financing methods to traditional bank loans that Proptech startups might start looking to launch and grow their businesses.
1. Venture capital (VC)
According to data from Crunchbase, proptech startups in the MENA region are primarily funded by venture capital (VC) funds. Venture capital firms are companies that invest in cutting edge emerging technological innovations that have great growth potential. They usually provide financial support at various stages of start-up financing and take capital in exchange for capital.
Venture capital facilitators are increasingly 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 launched a $ 26.7 million fund to invest in Proptech startups in the kingdom and the MENA region in wider.
2. Startup accelerator programs
Accelerators invest in early stage startups by offering seed money in exchange for equity in the business. This is typically a three to 12 month mentoring program that offers a wide variety of benefits to international and domestic newcomers, providing them with workspaces and the tools to develop their skills and grow their business. .
In addition, acceleration programs provide their “graduates” with a gateway to connect with investors and potential clients, providing them with growth opportunities through advanced market advertising. UAE-based Aldar Scale-Up is the most recent acceleration program in which it will select up to five global startups to be awarded pilot projects.
3. Crowdfunding and peer-to-peer lending (P2P)
P2P crowdfunding and lending platforms such as Smart Crowd and Beehive in the United Arab Emirates are quick alternative funding tools that allow startups to create a campaign for their business ideas and collect donations from various investors in exchange for some benefits and rewards. Additionally, these funding methods provide professional marketing tools to promote projects that allow startups to engage with new types of investors.
The challenges of proptech innovations
Like all other regions, there are unique sets of challenges to the growth of certain proptech innovations in the MENA region. While some are seen as macro-level challenges regarding country-wide regulatory capacity and require government support, others can be classified as micro-level barriers that relate to country-wide operational capacity. organization and customer challenges and require management support.
1. Legal frameworks
As technology advances ahead of regulations, especially with the integration of new data systems and algorithms, there are concerns about how best to regulate data and its ownership. Therefore, restrictive and complex legal frameworks are obstacles for various startups looking to adopt new Proptech innovations. The Proptech landscape in the region is neither mature enough nor transparent enough, and it is still young and fragmented. However, as Proptech becomes more and more mainstream in the region with many innovations emerging, regulators are developing a better understanding of these technologies and reducing current regulatory concerns.
2. Management and operating structure
Lack of long-term management commitment to a successful Proptech strategy is another hurdle that managers and leaders must 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 accelerate technology adoption across the organization.
This is supported by a knowledgeable team of data and technology experts and defining the internal and / or external training programs needed to upgrade teams to newly adopted technologies and systems. Therefore, effective governance and sufficient resource allocations are essential for the implementation of a successful proptech strategy.
3. Data confidentiality and security
Integrating new applications with older systems can lead to serious vulnerabilities and security threats. There are times when data security becomes weak as it goes through different maturity points during system upgrades, so organizations should be well equipped in the event of a system breach. Simply educating and training employees on cyber attacks and how to deal with them can be a practical first step towards cybersecurity. Organizations can also incorporate strong encryption methods and strong firewall systems to protect customer information and prevent unauthorized connections.
4. Customer-centric technologies
Proptech startups are often too invested in the technology itself and its functionality not to deliver it with a customer-centric perspective. Other businesses are revenue driven and don’t put a lot of effort into meeting customer expectations. This approach can quickly lead to product failure and would not achieve long term organizational goals. Project management is crucial in identifying product strengths and weaknesses and can help organizations narrow the gaps and build user-friendly applications.
While Proptech in the MENA region still lags behind global investment figures, new initiatives and programs are expected to increase momentum in the region in the years to come.
The rapidly changing landscape will soon change the way the adoption of an innovative digital business model in the real estate market is viewed – from a simple value-added service to a necessity for business success and continuity. This represents a great opportunity for startups to differentiate their offerings and gain a competitive advantage to attract investment by creating adaptable and upgradeable technology as the field matures.
Zenah Alsaraeji is a research analyst at JLL MENA