Faisal Butt, co-founder of Pi Labs, on why Big Data really is a big thing and how it can turn real estate from a digital tortoise to a digital hare
In 2007 it was estimated that 94% of all the data on the planet was stored in digital format. The world has changed a lot in just nine years, and the pace of digitisation shows no sign of slowing.
Today, with an estimated 2.5 quintillion bytes of data produced each day, that figure must be approaching 99.9%. But as we amass bits and bytes, what is being done to use this new-found knowledge to make our world a better place?
More specifically, how can data, and the insights hidden therein, be used to benefit real estate – an industry that has historically been a “digital tortoise”?
Big Data refers to the analysis of large data sets to detect patterns of human behaviour. The technology continues its rapid advance across sectors; today, it can be used to spot business trends, prevent diseases, and even combat crime. Airlines are sifting through vast troves of travel data to improve customer service, hedge funds are exploiting it to optimise their investments, and IBM and the Chinese government are using Big Data analysis to reduce air pollution. But is Big Data a big deal in real estate?
Imagine a world in which real estate investors had a “live” screen much like a Bloomberg terminal. On this imaginary terminal, stock prices would be replaced by property prices, dividend yields by gross yields, the FTSE-100 index by the “Prime-100 index”, and suggested stock picks by suggested property picks. Developers, investors, institutions and even individuals could get instant access to the data, trends, and risk analysis they need to reach an investment decision quickly.
This notional transparency would be an improvement of a notoriously opaque industry in which many are guilty of hoarding information at the expense of those who over-analyse an investment, or even worse, rush in brashly with incomplete information.
A market in which investors can visualise quickly and accurately what is happening across real estate (in much the same way as a trader witnesses the gyrations of the financial markets on his screen in real-time) would have fewer information asymmetries and be far more efficient.
This imaginary terminal in this fictitious world is actually not far from reality. Reams of data are created daily by estate agents, consultants, developers, investors, construction companies and government agencies. Accessing this data, cleansing it, normalising, connecting it to other data sets, and making sense of it is the challenge.
You might find it easy enough to download an open government data sheet, but private data from a property developer may not be as forthcoming. How will we access, collate, and harness the data our industry creates to help us make faster, better investment decisions?
This is exactly the challenge that Insight Residential, a Pi Labs company, has taken on. Its vision is to help its users “see the market, before the market”, and reduce the time spent on research and due diligence by 90%, by having all the necessary data available in one place and in one format, any time it is needed.
Users of this service, which is still in beta, can analyse local markets (Camden Town, for example) and detect trends emerging in ways not possible before. Quick and easy answers to basic questions such as “what has been the capital value per sq ft and rental yield trend in this neighbourhood for the past 30 years and what is the prediction for the next three years?” have previously not been available, but are now becoming a reality.
Early signs suggest that Insight’s Big Data approach to real estate investment analysis is working. In beta tests, Insight has managed to crunch its data to not only look back into the past but also look forward and identify previously overlooked investment locations that are well placed to change in value in the future. The more data it accumulates and the more sophisticated it makes its algorithms, the more “predictive” the technology becomes. By skilfully exploiting the power of Big Data, Insight Residential may even have a fair chance of living up to its bold motto of “seeing the market, before the market”.
A few years ago the Economist Intelligence Unit put together a report that quoted MIT’s Sloan School of Business, which posited that “companies that engage in data-driven decision making enjoy a 5% to 6% increase in output and productivity over firms that do not”, and that this uplift can also be seen in “return on equity and market value”.
Although we do not yet fully understand and certainly cannot quantify the impact that Big Data will have on real estate, I am convinced that the world will be a better place when property markets get their own real-time, data-driven, Bloomberg-like technology.
Although Big Data may not bring about an end to property bubbles, I sincerely hope we can prevent age-old mistakes like sprawling overinvestment and overbuilding, which create
value-destructive supply and demand imbalances. My big hope for Big Data is that the increased knowledge it brings to the surface results in smaller booms and busts, and that its real gift to the future is a longer, smoother, and more sustainable property cycle.
Is Big Data the big hope for real estate? Interact via @faisalbutt_ @pi_labs or @estatesgazette