Does Mena’s proptech sector still have room for growth?

Does Mena’s proptech sector still have room for growth?
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Proptech, short for property technology, is steadily gaining momentum within the real estate sector across the Middle East and North Africa region (Mena), with a growing number of startups joining the fold, looking to change the way of doing business in the wider industry and acclimating it to the digital world.

Despite the ample market opportunity, startups in property technology (proptechs) face a unique set of challenges when making inroads into the market, ultimately limiting innovation and competition. 

Among these challenges is the difficulty of acquiring funds, especially at the earliest stages of the startup’s development as well as limited access to data, as more established players can be hesitant to share data with fledgling companies. This, eventually, makes a startup-corporate collaboration very hard to achieve. 

One space that is found to be more acceptable and considered less risky for both industry stakeholders and investors is property listing.

“Many founders were trying to build products that tackle different parts of the real estate value chain but were struggling to secure relevant data. They changed directions and started placing their focus on listing and search services as a result,” says Khaled Zaidan, founder of Saudi Arabia-based VC, Alkanz.

According to the Wamda Research Lab, investments in proptech peaked in 2022, with $101 million spread over 30 deals, representing 2.6 per cent of the total amount raised by startups in Mena. Last year, 19 protech startups managed to raise only $69 million, a drop of almost 32 per cent in funding value. In terms of countries, Saudi Arabia, the UAE, and Egypt are the top destinations, headquartering the largest number of VC-funded proptechs. Segment-wise, listing and search services are the top-funded space, followed by property management, vacation rentals, and real estate financing, more commonly known as rent now pay later.

Property listing as the most disrupted area 

The sales marketplace model is the most popular and disrupted area in proptech; Zaidan explains that around 60 per cent of active proptechs in the region operate as property listing platforms. The challenge lies in that building a matching portal requires continuous funding to gather mass amounts of data, which early stage startups cannot necessarily afford.

“The problem is that founders are breaking into the space with a one-stop shop mindset, trying to do everything, to have every single property listed. It is impossible. It won't work," he adds. 

The property-listing space is largely dominated by a few players with a strong presence in many countries across the region, backed by extensive funding. The most prominent of these include UAE-founded Bayut, classified platform Dubizzle which was acquired by Emerging Markets Property Group (EMPG), and Property Finder. Some platforms focus only on their founding markets, such as Aqar for example, which is the most popular listing portal in Saudi Arabia.

These companies amassed ever-growing numbers of users over the years, having maintained a reputation for being ahead of the herd since the early and mid-2000s, when they were early adopters of digitally enabled property-listing services, giving rise to the first wave of proptech in the region.

Recent years have seen the rise of proptechs focusing on different niches across the broader listing space, such as vacation rentals, co-working spaces, commercial units, and reverse listing. 

Unlike traditional property marketplaces, where users click on a property and are then connected directly to the agent, reverse search works by gathering the buyer's criteria and then automatically pushing properties that match their criteria.

Also, as a means to differentiate themselves from their larger counterparts, some founders tend to incorporate more offerings into the already existing property-listing platform to optimise their unit of economics and secure longer cash runaway.

Uneven playing field

In the markets where the above-mentioned players are active, such as Egypt, startups launching in the property-listing space are faced with an uneven playing field.

An example of this is the Boyot app, which started as a property-listing platform before becoming a facility management app. As an early-stage company, it was unable to fund a cash-heavy business model like property listings and so the startup dropped this service. 

“Most sales are done through brokerage companies. A lot of proptech focuses on the sales side of things and targets working with brokers. But for a property listing platform to succeed, it needs huge investments. Nobody realises this until they operate one, and for many founders, it is treated as a comfort zone,” says Mahmoud Elsabongy, founder of the Boyot app.

After its shift away from listings, the founding team at Boyot saw an opportunity in creating a solution to streamline rent collections for landlords and tenants by utilising fintech applications.

“We did everything and added the necessary features, but we decided to take a step back and have resources concentrated on fintech, at a time when all industries are rapidly moving towards being fintech-enabled," says Elsabongy.

Part of the startup’s decision to walk back from property listings was the need to focus on generating revenues for both the buyer and seller to ensure the sustainability of its business model.

To jump-start their businesses and lure consumers, property-listing platforms usually start with a freemium model, leading to a steep cash burn for some of them.

The double whammy of high burn rates and fierce competition painted a tough road for Isqan, another Egyptian proptech, whose founders were forced to close its online property-listing platform after investors stopped pumping in cash due to their inability to reach certain milestones. Now, it operates as a traditional brokerage company.

Strong need for listing services

Addressing the growing need for more data visibility in real estate is what makes property listing the focus for many companies and startups, especially in nascent ecosystems such as Jordan, where property-focused listing portals are lacking. 

In an aim to leverage the first-time mover, Jordanian entrepreneur Ahmed Nawasrah launched Khareta, which enables buyers and sellers to make fast, data-driven buying and renting decisions. Nawasrah clarifies he was largely inspired by his experience dealing with US-based multi-listing service (MLS) providers such as Zillow and Redfin.

“[I] lived in Dubai and Qatar and wanted to invest in the real estate market, but the experience was very frustrating owing to the lack of information. Our key mission is to make information available,” he explains. “To give an example of this huge gap, in the US, it takes 25 days to sell a house, meanwhile, in Jordan, it takes seven months, and 210 days to sell an apartment. There’s so much inefficiency.”

Locals account for the majority of Khareta's user base, with expats representing 25–35 per cent of its traffic, as the latter bracket mainly relies on Khareta to make data-driven real estate investments.

Similarly in Iraq, where there is a rise in real estate activity, the property listing space is proptech’s most sought-after space by startups looking to consolidate property data provided by brokerages and real estate firms. The uptick of interest in proptech in the country is attributed to an increase in population growth and a subsequent rise in demand for more properties. But, the sentiment in the overall real estate market is challenged by soaring property prices and weakened purchasing power.

One startup aiming to address the widening gap in prices and provide a better means for people to easily search for property is Erbil-based Homele, founded by Soran Hamawandi. Besides listing, the platform also connects users to local providers of construction and home services. 

“There are a lot of gaps in the real estate market in Iraq, which led us to start Homele. To search for a property, people travel from city to city or make multiple visits to the location of preference. Additionally, we can see that social media is still the preferred method of listing for many people,” says Hamawandi.

“On the business side, real estate expenses were high, because real estate [companies] are opening multiple branches to reach more people. For example, one has 45 branches and the other is 20 to 21. Each register has a limited number of properties, unlike in the app, where they can list thousands of properties and exactly get your pulse on the market needs and type of properties people look for,” he adds. 

Another startup operating across the same vertical is Eqar, scheduled to launch its online listing platform this year. The startup seeks to capitalise on the expansion of the real market in the country, particularly in the capital, Baghdad.

A moment of reckoning?

In a more developed ecosystem, innovation will not remain limited to buying, renting, and selling properties, as the space has become increasingly competitive. Founders and investors, as a result, will turn their gaze to targeted business models that utilise tech applications to address the industry’s deep pain points - property and portfolio management SaaS providers are such cases in point. 

The positive momentum, albeit constrained, is further aided by regulatory changes happening across the real estate sector in the region, specifically in Saudi Arabia.

“Property listing surely represents a small fraction of what proptech is. The market is still small, and there's insufficient pipeline to cover the unmet needs. This just takes time to happen,” says Zaidan.

Moreover, from the developer’s perspective, the need for improved operational efficiency will increase stakeholders' appetite to embrace more specialised proptech solutions such as construction technology (contech). 

“In the coming three years, [proptech] will gain massive importance, with large-scale infrastructure development projects taking place across many countries, including Saudi Arabia, Egypt, the UAE, and Qatar,” adds Zaidan. “We need technologies that drive efficiency on these projects, whether they are outsourced from foreign companies or offered by local companies, encouraged by the sheer size of the opportunity. And this calls for more construction technology companies, it is a proptech segment that’s undeniably underserved.”


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