Globally, technology is rapidly transforming the financial sector. One of the many financial services industries impacted by FinTech is commercial real estate (CRE). With an ever-growing population, commercial real estate is becoming increasingly important as every office property, shopping mall and skyscraper owes its existence to CRE lender capital. Much like tech companies have disrupted consumer lending, technology is slowly transforming the CRE market.
Real estate continues to attract capital, demonstrating its appeal over other asset classes in an otherwise uncertain investment world, where inflation and interest rates are rising. CMtoday talks to industry experts to understand this trend on the rise of FinTech in the asset management sector.

What is FinTech?
Financial technology, or FinTech, refers to the application of disruptive technologies in the financial services industry. Although FinTech is not new, it has been under the spotlight in recent years as advances in exponential technologies and new business models have challenged existing products, services and processes, and enabled faster, cheaper, or more engaging solutions to be created. FinTech innovations can come from both start-ups and incumbent financial institutions.

Impact
Traditionally, the real estate sector has been using various manual processes, making it ripe for innovation and technological advancements. Furthermore, the COVID-19 pandemic has forced many industries to adopt technologies at a rapid pace, and the real estate sector is no different. Specifically in the property management sector, financial technology, better known as FinTech, has gained major significance. Additionally, according to a report by MSCI, the size of the professionally managed global real estate investment market increased from USD9.6 trillion in 2019 to USD10.5 trillion in 2020.

“FinTech makes transactions easier, quicker and also minimizes potential fraud. For example, one such FinTech solution is blockchain technology, which has greatly eased the system as it enables trading platforms and online marketplaces to support real estate transactions systematically. It also removes the need for intermediaries such as brokers, lawyers, and banks,” says Michael Waters, Associate Professor in Real Estate, Heriot Watt University Dubai.

Michael Waters, Associate Professor in Real Estate, Heriot-Watt University Dubai.

According to a report by Deloitte, blockchain-powered platforms will eventually undertake functions such as payment, legal documentation, and listings. This will ultimately provide buyers and sellers the opportunity to gain more out of their money as they save on commissions and fees charged by intermediaries.

“The impact has been positive, and as the technology matures, it will only continue to add more value. Other disruptive technologies such as regtech, wealthtech, proptech, and insurtech are increasingly emerging as areas of innovation in financial services in property and asset management,” adds Waters.

Shaping the region’s real estate
The region’s real estate market has witnessed major changes with the introduction of FinTech. Technologies such as tokenization and online real estate investment platforms are emerging as
advanced tools in the market. For example – tokenization, which refers to the division of a property or asset into tradable shares or digital assets on a blockchain network, has already been in the works in the UAE.

A Dubai-based real estate company along with Europe’s leading tokenization firm will launch a trading platform that will be accessible to real estate owners and brokers in the GCC. The new platform is set to pave the way for trading, owning, and liquidating property assets through digital trading tokens. Additionally, several online real estate investment organizations are opening in the GCC and the region.

“Such platforms allow investors to buy shares online in property and earn regular returns in the form of quarterly dividends. This also increases accessibility as it creates a pathway for those residing in other countries to buy and manage properties through online platforms. Such technologies largely benefit society by providing ease of transaction and hassle-free dealings,” explains Waters.

Trends
Having established how FinTech is helping shape the region’s commercial real estate market. It is now time to shed some light on the kind of trends the market is witnessing thanks to FinTech solutions.

Mohammed Almunaikh, CEO, Ajar

Mohammed Almunaikh, CEO, Ajar, points out three key trends. “Firstly, there will be more Know Your Customer (KYC) solutions and legal startups that will help fintech and other entities to onboard customers faster. One is also witnessing more open Application Programming Interface (API) and open banking acceptance. And lastly, there is a lot of credit scoring taking place by analyzing the consumer’s spending history,” explains Almunaikh.

The way forward
FinTech will become a commodity in our future world, simply, it is going to be the method of transaction and exchanging values. “Also, it will evolve to become a more robust way of accessing opportunities, as you will be engaged with the fintech payment method, as a result, your property history and transaction will be analyzed to provide you with much more suitable offerings. Also, giving FinTech access to its customers will make KYC and compliance work almost momentary,” says Almunaikh.

To conclude, almost every day there are new headlines about digital initiatives, digital incubators, innovation teams, acquisitions, or collaboration with nimble FinTech firms. Startups are constantly incubating new ideas as they continue to increase in size and services.

Traditional real estate companies can learn from and in many cases benefit from collaborating with FinTech startups. As they do it will cause a reassessment of their engagement approach given FinTechs’ flatter and more nimble style of operations. All approaches will only stand organizations in good stead as they embrace the exponentially changing future.