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Real estate change is happening now - but is it fast enough?

Digital transformation in housebuilding: threat or opportunity? This was the webinar topic introduced by Magomed Galaev, CEO & founder of Kreo. In the live Q&A with James Dearsley, Co-founder of Unissu, we discussed how we're seeing real estate change unfold.

Everyone in construction knows that profit margins are nothing to shout about (unless you’re angry about them being so low!). When you compare the largest construction companies’ profit margins with those of major developers, the differences are unmitigated. Contractors, who know all about building homes, make the least profit. Developers, who know very little about building homes, make the most.

The benefits to digital transformation become clear when you look at the companies whose business models were “disrupted” by technological advances. The black cabs, advertising companies and hotels had no idea that they would lose business to anyone other than their direct competitors. Everyone was enjoying their profitable businesses and no one could foresee the change about to happen.

Magomed’s presentation made the point clear that based on examples from other industries, disruption does not come from experts within the field. The growth of technology, such as cloud computing and open source software, and venture capital are changing the way companies work. If companies want to avoid disruption, they need to be aware of the need for business change, centred around digitalisation.

Furthermore, the traditional industries who have already been disrupted were mostly targeted because they were profitable. For the real estate industry, that means developers are likely to be disrupted first. The new disruptive businesses will undermine the existing business model in real estate development because they will be loss-making. Take WeWork as an example. The company has been loss-making from the start, but its market value is already greater than many profitable real estate businesses.

Real estate change will be spurred by developers' high profit margins

What's hindering real estate change

Kreo provides enabling technology for companies’ digital transformation in property and construction. But developers are still slow to understand that real estate change needs to happen. There's a lot of talk about new tools and technologies but fundamental business processes are ignored. Kreo focuses on the core of the problem, which is the housebuilding itself. Building Information Modelling (BIM) done in the right way should be a priority for enabling real estate change.

We asked James Dearsley whether he’d seen any developments in the take up of BIM by the property industry. “No” was his answer! He explained that there are three main reasons why:

  • Inertia, as described in Magomed’s presentation
  • Fatigue with the term BIM, as we outlined in a previous blog on the digital twin
  • Lack of construction case studies in BIM

It is the latter that both causes and demonstrates major problems in the construction industry. “We need to shout about the output of what you get from BIM,” James pointed out. “It’s part of willingness to be open to potential failures, to discuss wins, what money have you saved, how did you benefit.”

Why is there this corporate sensitivity and secrecy around BIM? Time and again, we at Kreo have raised this issue (particularly around sharing of cost data) and heard similar responses:

“If we share that information, our competitors will get hold of it, and we’ll lose out”

More and more, we see other industries being fearless when it comes to sharing information. Competition doesn’t work on copying one another any more. It’s no longer a race to the bottom in terms of value either. So why aren’t we seeing construction case studies?

James made the point that the risk of failure is still seen as worse than doing nothing in the global real estate market. Experts and technology providers need to help companies learn quickly from failure, which will reduce the fear of failing. 

It’s time for the construction industry to take the risk and start sharing. Yes, those who share their failures will be scrutinised. Those who share their success stories may be copied. But those who share loudly will be the first to do so, making them the disruptors. The change management process will not be easy but those companies who do this will see real estate change to suit their needs. The others will have to follow (or, as cited by Mark Farmer of Cast, “modernise or die”).

On a final point, Magomed said we can’t blame companies for not adopting BIM in the first place. It has been around for a long time. But BIM is the same as it has been for thirty years, except we use a computer and mouse instead of pen and paper.

“The promise of BIM to transform the industry to save time and money hasn’t come about.”

This is an area again for technology providers to step in and make BIM easy to adopt as part of digital transformation. BIM should be collaborative and fast, but technology companies are not set up to support this. If the technology companies can't support this, how can businesses?

BIM can only transform the industry with the right business transformation (strongly linked to digital transformation) in place. When the right technology partners work together with companies, nothing will hold them back. Real estate across industry needs to accept failure, share information and adapt to new ways of working with technology.

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