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Four reasons we like property tech

At Oxford Capital, we are a UK-focused early stage investor. We like to focus on the UK because we are a relatively small team of 8, but also because we believe in the UK’s potential as an ecosystem for nurturing and building great tech businesses.

Within the broader UK tech landscape, we like investing in industry sub-sectors that startups can easily address, and where the UK has a natural advantage. We believe property tech, (the application of digital technology to the property vertical) has all the characteristics that make it a great fit for VC investment, and is a sub-sector where the UK is a potential global leader.

1. UK’s national obsession with property

Obsessing over property, and in particular home ownership seems to be hard wired into the British psyche. 63% of Brits admit to regularly browsing property websites when they are not planning to move or buy, and last year “property porn” was added to the Collins English dictionary. Nearly all Brits aspire to home ownership, whilst our neighbours in continental Europe are content with renting for decades. Both a cause and effect of this obsession is that the UK is short of housing, and for those not able to get on the property ladder, renting is a painful experience.

2. A huge home market…*

So it’s no wonder that this obsession with property is borne out in the size of the UK property market, especially when compared to the rest of Europe:

Average per square metre (sq. m.) prices in € of 120-sq. m. apartments located in the centre of the administrative or financial capital of each country (Global Property Guide).

And in absolute terms, the opportunity is enormous. In 2015 UK built property market was worth £6.9 trillion – that’s 2.5 times larger than the UK’s GDP – and nearly half a trillion of this property value was transacted in 2015. We believe a strong home market is crucial for startups, and ideally one large enough to build an exit-ready business before needing to consider international expansion.

3. …that is largely served by analog business models

Today the vast majority of these property transactions take place offline, and are characterized by an asymmetry of information, friction and lack of trust. Transactions are brokered by third parties that are well compensated but add little real value. Digital technology has yet to make significant inroads into the property sector, but we believe it has the potential to address these inefficiencies.

4. A diverse pool of talented property tech entrepreneurs

Given the above, we believe there is no shortage of talented individuals in the UK with relevant industry backgrounds who understand the problems of the sector and how they can be solved. This is underscored by the increasing number of property tech entrepreneurs and startups we encounter, and the volumes of VC investment in the sector. Property tech startups raised a record $428 million globally in Q1 2016 and the UK has produced some notable early successes in listing and search (e.g. Rightmove), with more in the pipeline. Beyond this, we believe there are plenty of interesting emerging sub-sectors, including property management, online estate agency, space utilisation, and data-driven valuation.

If you’re an entrepreneur, involved in the tech and/or property sectors or have a different view, we’d love to hear from you! Please get in touch.

* It’s worth acknowledging somewhere in this post that current market commentary favours a fall in property prices, driven by falling global asset prices and a government tax clampdown on buy-to-let. While property prices may be due for a correction in the short term, we believe property tech business will not only be insulated from a correction, but stand to benefit. Startups are mostly providing services around property, and a correction favours smaller, more agile companies. For instance, “letting out” a property on Airbnb through one of London’s several property management startups is a great way to boost yields for buy-to-let landlords affected by the impending tax clampdown. Our longer term view is that UK property prices will continue to rise, driven by a growing population, finite space and stringent planning regulations.

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