The tough proptech proposition ahead

February 17, 2023 | 20:00
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Compared to just a few years ago, the Vietnamese proptech market is now more vibrant, diverse in both quality and quantity with the participation of many different brands. But while the playground is now occupied both by traditional real estate businesses and tech companies, the risks are still apparent.

In July 2022, online real estate platform Propzy declared bankruptcy after 10 years of operation in Vietnam. The real estate tech company was previously at the top of the proptech segment when it raised $37 million in funding rounds, of which $25 million came from Gaw Capital and SoftBank Ventures Asia.

Before that, real estate trading platform also closed due to the pandemic in 2020. Operated and developed by Swiss multinational media company Ringier, the site was at the top of real estate buying and selling websites in Vietnam for several years.

Although Propzy and both failed, other proptech groups are still entering the market or adding on more capital.

In 2022, CBRE has invested more than $200 million in two proptech companies: a deal of more than $100 million to buy VTS Corporation in the United States and another $100 million-plus in Industrious, a rapidly growing provider of flexible workplace solutions. Dang Phuong Hang, managing director of CBRE Vietnam, said that the company was paying great attention to tech funding because customers were eager to use technology to increase the value of real estate assets and optimise investments.

“The market has also changed globally and technology is changing at a rocket speed, so there is no other choice but to invest in technology,” Hang said.

The tough proptech proposition ahead
The tough proptech proposition ahead

Technology in real estate brokerage helps Vietnam’s real estate market become more transparent with open information related to property.

“In Vietnam, technology tools used in other countries will also be applied when more companies have to adopt these technologies,” Hang said.

Pham Lam, chairman of DKRA Group, said that proptech companies in real estate brokerage were few, and digital transformation in real estate brokerage was moving slowly. “Although applying technology will help customers have a better experience, it is not easy to apply it in practice, and sometimes it becomes a barrier. A format optimal in terms of technology will certainly be good, but some formats with high specificity may not be applicable to other technologies,” Lam said.

Hang from CBRE Vietnam added that for technology brokerages, it would take more time before they are strong enough to compete directly with traditional companies. “Technology companies will eventually be better than traditional companies because the customer experience and needs will gradually increase,” she said.

The drastic change in user behaviour after the pandemic with a growing trend of using online services has forced real estate groups to invest in technology development to meet this shift. With 64 million internet users, accounting for two-thirds of the population, experts assess that the real estate market in Vietnam could reach $21 billion in 2025 if proptech is utilised effectively.

More than 60 proptech companies are currently operating in Vietnam, providing listing services and e-commerce platforms in the marketplace, e-brokerage, crowdfunding, asset management, coworking spaces, construction, office leasing, and more. As many as 80 per cent of the companies operating in the domestic market have foreign investment capital.

Avoiding risks

Inadequate use of capital, inefficient management, and being unable to keep track of the market demand have all caused the end of some startups, even those that have enjoyed capital injections worth tens of millions of US dollars.

Aidan Wee, CEO of PropNex WeeReal, said that although the closure of Propzy damaged confidence in the real estate service sector, Propzy’s customers were not affected. “The services that Propzy provided are not exclusive and can be easily replicated by other traditional real estate brokerages. Moreover, customers that engaged with Propzy are unlikely to have given them the exclusive rights to broker their real estate,” Wee said.

As for Propzy’s investors and partners, largely big venture capitalists, it is highly unlikely to cause much financial damage to them. “It is, after all, just a business loss that needs to be written off because they made a bad decision regarding Propzy’s business model,” said Wee.

He added that in every business startup, the vision and direction of its founders are significant. “They are the ones that have to work the hardest to drive the business and determine its success, instead of relying on hired professional managers. The professional background of Propzy’s owner was in finance and not real estate, explaining his connections in getting funding. Moreover, as he was from the US, there were also reasonable doubts of his understanding of Ho Chi Minh City’s real estate market from the ground level up,” Wee added.

According to experts, there are many reasons that can cause a startup to fail. Property consultant Nguyen Duc believes that one of the factors determining the success of a technology startup is the way it approaches and solves market problems, finding business models that fit its plan and vision.

“Creating an efficient, lean, and executable business model is not easy. Vietnamese people like to use services for free and many users meanwhile share the fee for a certain service. If there is no feasible solution from the beginning, services providers would bear risks in their businesses,” Duc said.

Huynh Minh Tuan, an investment analyst from Genesia Venture, added that Propzy’s demise would definitely partly affect capital inflows into Vietnam’s market.

“If there is one lesson from this case, it’s that startups should manage their cash flow more closely and practice disciplined finance, especially as the winter of fundraising is here, and the money source will not be as abundant as before. Startups should focus more on the bottom line and pay attention to sustainability growth,” Tuan said.

Hai Nguyen-Co-chairman, PropTech Vietnam Network
The tough proptech proposition ahead
The greatest challenge for proptech startups in Vietnam is similar to that in the global property market: digital transformation in the real estate sector is very slow.

Even in the proptech market in Southeast Asia, the total number of active startups currently accounts for only a minimal percentage compared to other industries such as fintech, edtech, and e-commerce.

While the proptech ecosystem is still immature, attracting investment from venture capital funds will be difficult. And when there is a lack of investment capital, startups will find it difficult to create value for the real estate market in two ways: using technology to improve efficiency or complete disruption of the whole market.

Another difficulty for proptech startups is that real estate in Vietnam does not have a database widely shared with the community. So, startups need a lot of expertise and business relationships to build their own. This creates huge costs and hinders the growth of startups.

Although Propzy’s shutdown was bad news for the market in Vietnam, receiving huge capital from renowned investment funds was a positive sign for other small-sized startups and the entire proptech ecosystem.

Propzy did not reach its final destination. However, it will leave a pathway for other young startups to step up. In fact, within the last two years, a new wave of proptech startups has launched to solve one of the most difficult challenges in our lives: buying and selling homes.

Doan Tung-Chief marketing and growth officer, Houze Group
The tough proptech proposition ahead
Experience and understanding of the real estate market in Vietnam is the most important factor for avoiding risks. Vietnam’s real estate market is primitive and complex and there are continuously positive adjustments from the government and local authorities. Therefore, the experience will help reduce expected risks.

Secondly, prestige with investors and real estate developers creates an advantage. Vietnam currently has more than 100 key real estate developers and more than 1,000 real estate brokerage floors, creating fierce competition. The reputation of the founders and the capacity of their teams must be convincing enough for the market.

Last but not least is the management and operation of a growing startup. Proptech and other fields require true corporate governance, which is the combination of many skills of the executive board. It must attract and retain talent, conduct business development, improve products, and operate processes. For proptech, it is still necessary to combine tradition and technology to follow market changes and adjust accordingly.

The wider impact of Propzy collapse to the proptech sector The wider impact of Propzy collapse to the proptech sector

With proptech startup Propzy ceasing operations, VIR’s Bich Ngoc spoke with Doan Tung, chief marketing and growth officer from Houze Group, to discover how proptech businesses like Houze can reduce risks and if Propzy’s downfall will impact investment flows.

Learning the lessons of proptech failures Learning the lessons of proptech failures

Inadequate use of capital, inefficient management, and being unable to keep track of market demand have all caused the end of some startups, even those that have enjoyed capital injections worth tens of millions of US dollars.

Sound business strategy crucial for proptech players Sound business strategy crucial for proptech players

The property market is facing numerous hurdles, and Propzy’s failure makes it difficult for the proptech ecosystem to improve.

By Bich Ngoc

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