The downturn in the housing market might be slowly coming to a close, suggests a new report from the Royal Bank.
Digital platforms are now among the world’s most valuable and influential companies. Whether it’s Airbnb in lodging, Amazon in retail, Haier in home appliances, or Uber in transportation, countless platforms have developed innovative methods to connect supply and demand more intimately than ever before.
Disruptive companies like these—typically unicorn—have upended traditional business models and created new ones in their wake. They’ve consequently changed how we live, work, and play—and in the process, transformed entire industries such as healthcare, education, transportation and even real estate.
In this rapidly changing environment, leaders need to understand how platforms work and differ from traditional business models—critical knowledge for strategists wanting to compete in today’s platform economy.
The Shift From Traditional to Platform Models
The linear value chain is no longer fit for purpose in a world where customer needs and expectations constantly evolve. Thus, to remain competitive, businesses must adopt a more agile approach to value creation based on a continuous cycle of experimentation and learning. This means moving away from the linear value chain toward a more iterative and flexible model: a platform.
Platforms are unique in their ability to create value by connecting different stakeholders, including users, developers, and businesses. This ecosystem allows for a constant flow of feedback and data that can be used to improve the user experience. For example, Haier developed an open platform that allowed third-party developers to create apps and services for its products, which was incredibly successful. The company now has more than 100 million users and over 1,000 developers building apps for its products.
In the past, businesses primarily relied on closed systems, where they controlled all aspects of the value chain. However, this is no longer viable in today’s fast-paced, collaborative economy—platforms can create value by connecting people and resources in new ways, emphasizing collaboration and peer-to-peer interaction. For example, Airbnb connects people who need a place to stay with people who have space to share. Uber connects people who need a ride with drivers who have a car.
“These platforms provide value to users by connecting them with each other in new and innovative ways,” said Huda Khan, a lecturer at the University of Aberdeen, in an email. “They’re highly scalable and open, allowing them to reach critical mass quickly. And they’re built for two-sided markets, which means they can create value for users and developers.” This is why “platforms are becoming the dominant business model across industries”, according to research published by McKinsey,
Where Platforms Are Making An Impact
There are three primary platform classifications: marketplaces, social networks, and developer platforms.
Marketplaces are platforms that connect buyers and sellers. eBay is one company that recognized the value of an online marketplace, quickly rising to popularity as the go-to digital bridge for consumer goods. Facebook Marketplace and Alibaba soon joined the consumer goods space with their own platforms. Others bypass physical goods and solely focus on the digital marketplace. The Apple App Store and Google Play are top of mind in the digital goods sector, not to mention the Metaverse.
Social networks are platforms that connect people. While Facebook enjoyed dominating their category in the late 2000s, the sector was and is still highly competitive. Instagram, and LinkedIn, are now heavy hitters with their micro-focused platforms based on photo, business networking and video-sharing.
Developer platforms are a niche for many, connecting developers with the tools needed to build applications. The best-known examples are iOS and Android platforms, providing developers with the tools to build apps on their respective devices. However, no-code platforms are quickly gaining popularity, especially among b2b SaaS companies. It’s become commonplace for companies bordering unicorn status to base their entire workflows on no-code platforms like Figma or AirTable.
According to research published by the Harvard Business Review, these three classifications of platforms will upend nearly every industry by “bringing together producers and consumers in high-value exchanges.” This is observable in real estate, where consumers have experienced difficulties, confusion, and expensive logistics for many years.
Untapped Potential Ready for a Modern Platform
Research published by Grand View Research valued the global real estate market at $3.69 trillion last year. Growth is forecast at a compound annual growth rate (CAGR) of 5.2% from 2022 to 2030. Yet, as large as it may be, the industry is famously fragmented, resulting in an inefficient and time-consuming process for both buyers and sellers. However, with the advent of new digital platforms such as Unreal Estate, the process is becoming more efficient and transparent.
Unreal Estate’s founder, Kyle Stoner, said, “I started Unreal Estate because I was sick of seeing people pay incredibly high fees to brokers when it was unnecessary,” in an email. But, he continued, “I knew there had to be a better way, and I was determined to build it.”
Platform businesses like Unreal Estate can often scale quickly and reach a global audience for three reasons. First, they typically have very low fixed costs, effectuating significant value for money compared to traditional market offerings. Second, they often capture substantial user data—which can be used to improve the platform, in turn making it more valuable to its users. Unreal Estate, for example, uses data from over 30,000 homes sold on its platform to create consumer dashboards with step-by-step guidance for buyers and sellers—enabling AI to enhance the home search experience, such as providing buyer recommendations and narrowed search radii.
This has significant implications for leaders. First, to build a platform business, you must deeply understand your users and what they value. Second, you also need to be able to execute quickly and efficiently to reach a global audience. So, if you’re looking to start a platform business, or if you’re already running one, here are three tips derived from Unreal Estate to help you:
1. Focus on your users and what they value: For example, if you’re building a platform for artists, make sure you deeply understand the needs and values of your artist users. What do they care about? What do they need that isn’t being met by existing platforms? Build your platform with those needs and values in mind, and you’ll be more likely to succeed.
2. Execute quickly and efficiently: For example, if you’re building a global platform, you need to be able to execute swiftly and efficiently to reach your audience. That means having the right team in place, with the right skills and knowledge. It also means having the right infrastructure in place so that you can scale quickly and efficiently.
3. Use data to improve your platform and make it more valuable to your users. For example, if you’re building a platform for artists, use data to understand what type of content is most popular with your users. Then, use that data to improve your platform and make it more valuable to your users.
In summary, as platforms disrupt more and more industries, it’s increasingly crucial for businesses to understand how they work. Only then can they take advantage of the opportunities these new platforms present. As we’ve seen, platforms are built around a core interaction between two or more groups of users. This interaction is facilitated by some technology that allows users to connect with each other and exchange value. Platforms use network effects to grow their user base, making the platform more valuable to users. And because platforms often enjoy first-mover advantage and natural monopoly status, businesses need to keep an eye on them.
Platform businesses are changing how we live and work, and we must keep up. After all, platforms are the backbone of the collaborative economy, and the collaborative economy is the future of business.
Canadian real estate crisis needs private-sector help: CMHC
A new report by Canada Mortgage and Housing Corp. says government alone can’t solve the country’s housing affordability challenges.
The scale of the problem is so large that the private sector must be involved, says the report by CMHC deputy chief economist Aled ab Iorwerth.
The national housing agency says public solutions such as rent subsidies and more social housing are helpful, but more needs to be done.
In a June report, on housing shortages and what the CMHC called an “affordability crisis,” the agency estimated that an additional 3.5 million housing units would be required to achieve affordability by 2030.
“To address this imperative, we need more private-sector investment to build more supply in the housing market, particularly in the rental sector,” ab Iorwerth said in the report.
The report notes that government incentives can be used to make it more attractive for companies to build additional housing, particularly the rental supply in fast-growing markets including Toronto, Vancouver, Montreal, Victoria and Halifax.
Although housing affordability is most difficult for low-income Canadians, the report notes that prices are out of reach for those with higher incomes as well.
“The housing system is interconnected, so fixing Canada’s affordability challenge requires a suite of policies to affect the entire system.”
Home prices have eased this year as the real estate market has cooled, but they are coming off record levels earlier in the pandemic.
The report says the imperative of increasing housing supply will be even greater as Canada seeks to attract more immigrants.
This report by The Canadian Press was first published Nov. 28, 2022.
Certus Capital invests Rs 30 cr in EON, a prime real estate project in Mumbai
Mumbai, Nov 28 Certus Capital, an institutional real estate investment and advisory company founded by former KKR director Ashish Khandelia, has invested Rs.30 crore in EON One, a residential project located at a prime south central location in Mumbai and being developed by EON group that has 30 years of experience in Mumbai real estate. This secured debt investment opportunity will soon be available for the investors through Earnnest.me, the digital neo-financing platform of Certus Capital.
With this Rs 30 crore investment, investments through Earnnest.me have crossed Rs.100 crore within months after its launch in February 2022.
This is the third deal closed by Earnnest.me in quick succession following Rs.40-crore investment in mid-market residential project being developed by Pune-based real estate development firm Pharande Spaces and another Rs.40-crore investment in Chennai-based real estate company Arun Excello’s portfolio of four affordable housing projects.
Commenting on the investment, Ashish Khandelia, founder of Certus Capital and Earnnest.me said, “This investment in EON is a part of Certus Capital’s strategy to fund well placed projects being executed by experienced developers in Tier 1 cities. The residential real estate sector is witnessing a stronger demand revival and improved sales. At Earnnest.me, we’ll continue to offer carefully selected and diligenced investment opportunities in the real estate sector to our investors.”
The company has plans to deploy about Rs 500 crore in FY22-23 in senior secured real estate credit deal through Earnnest.me. As a part of its strategy, Certus Capital takes up 10-15 per cent of each investment to ensure its presence throughout the investment cycle.
So far, more than 200 investors with a minimum investment ticket size of Rs 10 lakh have invested in various such credit opportunities through Earnnest.me. The platform has witnessed over 50 per cent repeat investing interest. It has a diversified clutch of investors which includes real estate professionals, finance experts, family offices, CXOs, UHNI, professionals, etc. Earnnest.me continues to actively evaluate deals across Tier 1 markets including Hyderabad, Bengaluru, Pune, Mumbai and Chennai.
Certus Capital continues to grow its leadership team and has added several senior hires. The company has recently appointed former Deloitte India executive Vishal Singh bolster its institutional investment banking business. The other recent appointments include ex-Piramal Capital executive Gaurav Bhalla as Director and ex-Deloitte India executive Siddharth Pal as Senior Vice President.
Across the twin platforms, Certus Capital is working through investment and advisory deals ranging from Rs 25-1,000 crore.
Certus Capital is also planning to launch its first category-II alternative investment fund (AIF) in 2023.
Since its inception in 2018, Certus Capital has evaluated over Rs.40,000 crore of real estate credit exposure forming part of NBFCs and, housing finance companies. Certus has also advised foreign institutional investors on close to Rs 10,000 crore of closed investments / platform commitments in real estate credit and warehousing space.
Pace of real estate decline finally slowing
Prices in Cambridge, for example, are off 22%, while London and Brantford have seen an 18% decline. Kitchener-Waterloo, Kawartha Lakes and Hamilton/Burlington have all had a 17% drop in prices.
While Toronto’s decline has been 11%, prices are expected to fall further.
Toronto also saw a drop of almost half (49.3%) in numbers of home sales in October versus October 2021, while new listings were down 11.5%.
For those on the sidelines wondering when or if to buy, a Toronto mortgage expert (who prefers not to be named) has some words of wisdom.
For starters, he prefers to keep all the gloom and doom on the down-low. A correction notwithstanding, real estate remains a solid investment.
So on the plus side, “with the correction have come reduced prices and reduced closing costs, especially in the GTA,” the expert said.
That’s provided you don’t have a lot of other debt, obviously.
As for figuring out your monthly mortgage payments, calculate $6 per thousand; a $500,000 mortgage will cost $3,000 a month, for example.
The fact that a one-year mortgage is currently at the highest rate and the five-year rate is lower — an inverted yield curve — is a sign of uncertainty.
“For the first time in my career, I’m not telling people what to do. Instead, I’m telling them their options,” he said.
The consensus seems to be that the worst is behind us, “but we’re heading into stagnation. Things will level off, but we need stability.”
There’s very little on the market right now, but the expert’s expectation is that things will pick up after March break, when young families will start looking again in earnest.
“The banks aren’t taking any chances. Anyone who thinks the banks are just giving money away — no! It’s never been tougher to get credit.”
Last word: focus on your debt. “I used to say, ‘Continue to save.’
“Now I say, ‘move from investing to getting rid of debt.’”
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