Japan PropTech

The Opportunity in Japanese PropTech

“There is no difference in the business model and technical capabilities of real estate startups in Japan and in the US,” stated Yoshimori Ito, founder of Itanji Inc., at the monthly PropTech Japan meetup. After attending NYC Real Estate Tech Week 2018 held in New York last November, he seemed to have strongly felt this sentiment. Itanji, a property management company, was successfully acquired by GA Technologies last November, and is attracting attention as an example of a successful startup in the Japanese PropTech industry. Ito added, “The crucial difference between Japan and the US lies in the depth of market capital.” In contrast to startups that provide the same service as startups in Japan, those in the US are able to raise funds with high valuation due to abundant VC money and a huge market size. Japan’s PropTech startups are differentiated from US startups by their challenges in procuring funding—but there is not much difference in the services they offer and their quality.

Compass is a good example. The Softbank Vision Fund announced last year that it will invest $400 million (about 45 billion yen) last September, and the US real estate industry became abuzz with the news. In the Japanese market, WeWork opened its first location in Tokyo after receiving a huge investment of about 480 billion yen from the Vision Fund. Meanwhile, there are no such examples among Japanese PropTech startups being funded by the Vision Fund at this moment, and the supply of risk money is a future challenge for upcoming startups.

So, will the US PropTech companies be the black ships of Commodore Perry? According to Ko Ichikawa, Vice President of Finance & Business Development at Movoto, “It is difficult for US companies to enter the Japanese real estate portal system.” One reason for this is that there is no real estate information system such as MLS (Multiple Listing Service), a widely used in the US, and the business environment providing real estate information is different. In Japan there is an information infrastructure operated by REINS (Real Estate Information Network System) which is supported by the Ministry of Land, Infrastructure and Transport, but only real estate agents have access to the portal. It is exclusive and closed, unlike MLS. Moreover, according to the Global Real Estate Transparency Index 2018 by JILL, the transparency of the Japanese real estate market is low among developed countries, ranking 14th place after Hong Kong and Singapore.

It is in such circumstances that the blockchain consortium in real estate, Aggregated Data Ledger for Real Estate (ADRE) was founded last October. The platform will be able to update property information accurately in real time and will manage that information in order to be open and provide transparency. The companies ZENHOREN (a rent guarantee business), Net Protections (a digital settlement business), Zenrin (a map publisher), and LIFULL which operates the real estate portal site “LIFULL HOME’S,” are partnering as participants in the project in order to revolutionize the Japanese industry. Meanwhile, companies that provide services like iBuyer, such as Sumutasu, are also appearing in the country.

It used to be a trend to optimize everything efficiently by moving all the back-office tasks online. However, it has now become clear that some business tasks should be done offline.

Ko Ichikawa, Vice President of Finance & Business Development at Movoto

In terms of real differentiation, an important future Japanese PropTech market concept is that of going from online to offline. According to Ichikawa, “it used to be a trend to optimize everything efficiently by moving all the back-office tasks online. However, it has now become clear that some business tasks should be done offline.” The servicing of customers had increasingly been done by advanced online systems, yet real estate companies and agents are not always responding to them in the best way. As a result, services such as AGENTOLOGY Inc., which undertakes primary responses, emerged. In Japan, the automatic response system (called “Bukka-kun”) provided by Itangi works to confirm a property’s price. There is also a service called “Naiken-kun,” which means previewing a property, that can automatically reserve appointments for real estate companies for 24 hours. This is an automated system for accepting, contacting, and reporting between customers, management companies, and real estate companies, not only simplifying a series of flows but also automatically checking unauthorized dealers in advance. The goal is to reduce the opportunity cost of previews, aiming for safety and more efficiency.

In addition to this, “middle tech,” which combines low-tech and high-tech on site, will become another common theme. Over the past few years, attention has increasingly focused on high-tech such as AI, machine learning, etc. With more work, the number of applications has increased. However, in terms of actual use, there are areas that can be used for practical purposes, and there are system provisions that can not be realized purely through tech.

According to Ito, 2018 was the beginning of PropTech, but 2019 will be the beginning of unicorns. In 2018, several PropTech startups were listed, while acquisitions of startups in the real estate and construction sectors, as well as funding, are now starting to happen. The foundation of the PropTech community in Japan has been growing, and the number of members in PropTech Japan, the country’s first PropTech community, exceeds 500. PropTech Japan’s monthly meet-up is held in Tokyo and welcomes speakers from home and overseas, working to galvanize the community. PropTech Japan’s Founder, Shun Sakurai said, “The PropTech community has been growing rapidly since last year. Examples of exits at startup in Japan have arrived, while government officials and major real estate companies are paying attention and getting involved in the field. The soil of the ecosystem in which cooperation will flourish is being laid.”

However, in terms of financing, Japan’s propTech startups that attract high buyout prices like in the US have not yet emerged. Yet, as the Vision Fund invests in PropTech startups, it gives a rosy sign that the PropTech field will become more recognized domestically and that Japanese VC investment will also increase. If Ito is correct in saying that, “there is no difference in the business model and technical capabilities of real estate startups between companies in Japan and in the US,” then the prospects for domestic companies should also expand.

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