A growing unicorn warehouse: why proptechs are set to overcome the market fires and keep growing in LatAm

TL;DR: Latitud's The LatAm Tech Report shows some trends that point to a bright future for proptechs in Latin America, even in the macroeconomic uncertainty is expected to continue in the short term:

• Growth is on the horizon for proptechs, including those in LatAm. Brazil, Mexico, and Colombia are the most remarkable markets, with their specifics;
• Customer’s needs haven’t been addressed (yet). Latin America has excellent digitization rates, while real estate is still dependent on paperwork. Technology is far from reaching its full potential when it comes to the real estate;
• The post-pandemic has brought many shifts to this market. Adaptation to these changes will shape proptechs’ future.

You probably clicked on this article after seeing a stream of not-so-happy news for the proptech sector in Latin America. Startups that are transforming real estate by using technology went through repriced valuations and layoffs in 2022. 

And that came after years of robust investment – venture investors have poured US$ 4 billion into LatAm proptech startups, more than 90% in the last four years. Unicorns were 33 up to mid-2022, 63% of them minted after the pandemic hit.

All this scenario probably has led you to mixed feelings about the next few years for real estate startups in Latin America. 

Yes, the macroeconomic environment is uncertain (and will probably continue to be in the near future). But even so, we're here to tell you that there's space for those who are innovating on proptech. 

A lot of market gaps need to be filled, like sand and clay in a new building foundation – especially in Latin America, which has a still fragmented and bureaucratic environment. That penetration is still low, real estate is a solid and robust market, and most customer needs have not been addressed. 

Those conclusions were drawn from recent data and real-life cases collected by our The LatAm Tech Report, which you can download for free. Here's a glimpse of what we have discovered.

Growth is on the horizon for proptech

Despite the recent drops in public stocks and layoffs in proptechs worldwide, the global predictions for the industry remain very positive.

The real estate global market is valued at US$ 9.6T before the pandemic, back in 2019. It grew to US$ 11.4T in 2021. Just to give you an idea, the powerful e-commerce market is expected to total half of that amount in 2022, with US$ 5.7 trillion. Only Brazil's real estate market accounted for US$ 50B in 2021, in comparison to its e-commerce of US$ 31B in that same year.

The future is bright. If we take only the Latin American residential real estate market, it's expected to record an average annual growth of more than 5% until 2027. And if the percentage seems low, remember we're in a market with huge, huge numbers.

Even this year's investment slowdown in the startup market didn't stop the proptech industry from creting unicorns. In May 2022, a new real estate unicorn joined the Brazilian companies Loft and Quinto Andar: Habi, a real estate buying and selling platform founded in Bogota (Colombia), raised a Series C and was valued at over US$ 1B. 

By the way, if any Latin American countries should be in your radar for proptechs, they are Brazil, México, and Colombia. That's because they dominate the list of real estate startups backed by venture capital in LatAm:

Brazil accounts for 70% of total funding and 50% of companies considered in The LatAm Tech Report. As a giant with approximately 72.2M households, the country is home to the most-funded proptechs in Latin America (Quinto Andar, Loft, and Creditas).

You probably already knew the importance for Brazil, not only for proptechs but for startups in general. Here's what you might not know: Colombia and Mexico are probably the most interesting cases in the region. 

Across Colombia and Mexico, more than a million homeowners seek to move to a new house, representing a market opportunity of more than US$ 12B combining both counties. 

In Mexico City, the average worker spends 2.5 hours every day commuting, and Bogotá frequently shows up in the rankings of worst cities in the world when it comes to traffic. 

Colombia’s proptechs are responsible for almost 20% of all venture capital funding raised in Latin America. Colombian startups benefit from a housing market that's warming up and recorded purchase peaks in 2021. But far from saturation, the country’s housing stock is short of more than 1.3M homes. 

Many of them also operate in Mexico, a bigger market that shares the language and cultural similarities with Colombia. Examples of this last trend are La Haus, Tul, and Habi. 

Expanding to Mexico has been especially attractive since the construction segment grows 9.5% annually, after a 20% decrease in 2020.

An IAD report reveals that Mexico wins as the country where most proptechs operate (77 against 66 in Brazil, closely followed by 51 in Colombia). Following the graphic below, we can also tell this market is very concentrated. Venezuela, Paraguay, and Honduras host only one operation each, for example.

Customer’s needs haven’t been addressed (yet)

Why are we seeing growth in the middle of a global recession, with inflation and interest rates impacting the real estate market directly? Because proptechs still haven’t solved core customer problems and explored all the digitalization potential in our region. 

LatAm has a 70% smartphone penetration, and that has made the region a super fertile ground for food delivery and e-commerce initiatives. Even so, on average, it takes 360 days to sell a property and 90 days to receive credit approval. 

Surely some of these connected people are looking for property solutions – but they also bear in mind how confusing and time-consuming they can be. And that's where proptechs come in. 

"In the following years, new steps will be made toward technologies that are still not understood today. Data and intelligence are still used as mere statistics and not used in an intelligent way", André Penha, co-founder & CTO at Quinto Andar, stated in The LatAm Tech Report.

André's vision encompasses a general perception of the leadership in the proptech segment: technology has not yet unlocked most of its potential regarding real estate solutions. 

Bureaucracy remains resource-consuming – let's remember we're nearing the end of 2022 and notaries are still out there. Buyers and sellers still rely primarily on independent brokers. Finally, the low level of trust and the laborious real estate local regulations undermine efforts for a 100% seamless online consumer journey – traditional players didn't invest in user experience, and could not succeed online. 

Pete Flint, General Partner at NFX, believes the future of proptechs needs to be a lot more disruptive. Real Estate 1.0 was about bringing real estate data and informations online. Then, Real Estate 2.0 was about the transaction, integrating the sell and buy sides with financial products and reducing transaction friction. 

Real estate marketplaces put together the transactional side and the information about properties. Changes to mortgages and rent guarantees in some countries made it easier to buy and sell properties.

Now, Real Estate 3.0 must digitize ownership, affordability, and tradeability. It's all about "taking out the friction of property management and fractional ownership", said the investor on The LatAm Tech Report. 

The appetite for one-stop-shop or marketplace solutions will trickle down to real estate assets and products. Also, the intersection of fintech and proptech introduced a new stream of disruptive iBuyers and Power Buyers, still incipient in LatAm. The future is about a seamless digital experience for buyers and sellers, tenants and property owners.

These waves of real estate follow consumer behavior. The preference of users will keep affecting the future of real estate startups – and you better prepare for it. So let's dive deeper into these trends.

Post-pandemic lifestyle must be on the radar 

You, I, and all Latinos know: covid-19 introduced online services to many people and accelerated dynamics that are here to stay, more in Latin American than in other regions of the world. 

For example: remote work came to stay, mainly for upper-middle and upper-socioeconomic groups (the target of 78% of proptech players, according to IDB). A Global Labor Organization (GLO) paper suggests that over a quarter of all regional jobs could be performed remotely (31% of all jobs in Argentina, 27% in Chile, 26% in Uruguay, and 27% in Brazil).

With that, habits and routines have changed. And this ultimately reflects on consumption priorities. Julian Roeoes and Santiago Danino, respectively Head of Americas and Head of LatAm at Picus Capital, think companies must manage new customer needs, driven by increased mobility and remote work.

Remote working has contributed to the resurgence of the suburbs and small cities, for example. Many of these markets have seen increasing demand for homes from buyers and renters, Christopher Yip, managing partner at RET Ventures, said in The LatAm Tech Report. 

Proptechs also need to take into consideration some delay in home purchase decisions, due to the current economic recession and the new geographical flexibility. Consumers are also looking to reduce office commute time and preserve work-life balance, opening space for proptechs to focus on segments such as offering more professional and personal services inside residential complexes.

Data supports this feeling. The graphics below show the US investors' bets right after the pandemic hit and two years after it started. Looking at the top expectations, amenities and property management solutions have overtaken fintechs and workflow/data solutions.

Right after the pandemic hit, what were US investors' bets?

Two years into the pandemic, what are US investors' thinking about?

The post-pandemic shifts also explain the massive capital transfer from commercial real estate toward residential services. And here are a few reasons why:

1. E-commerce should accelerate the decline of brick-and-mortar retail in exchange for last-mile logistics infrastructure and residential developments;
2. Each team member will demand less overall working space, shrinking the size of the offices; 
3. Remote work will lessen the need for business travel accommodation;
4. The low-rate environment makes residential properties a more attractive asset (but we need to take note here that rates are rising slowly all over the world. Make use of this while you can).

‍We talk primarily about opportunities here – fair enough since they are in place. But as you might already suspect, Latin America also poses a series of obstacles for entrepreneurs in the proptech industry. To know what are the challenges highlighted by real estate leaders, download the full version of The LatAm Tech Report.