PropTech Today: Can €19 million disrupt an entire sector?

News this week tells of Zehomes, the German property management company, raising €13 million in Series-A funding, bringing its all-time total to €19 million.

Can its all-in-one management solution truly disrupt the European market and remove the need for many agents and property managers?

If so, is €19 million enough money to do it with?

Zehomes is an all-in-one digital platform for private landlords and property managers with a vision to ‘create an ecosystem of connected, digital platforms bringing together landlords, tenants, and service providers such as craftsmen or real estate agents’.

It is hoped that Zehomes can be a truly holistic management solution to innovate, maybe even disrupt, the sector.

All of the basic tools, sufficient for a private landlord with just a handful of investment properties, are free. If you wish to upgrade, you have to pay handsomely for it.

The first important question to ask is, can a jack-of-all-trades platform deliver top-tier solutions and services to a highly competitive market, or will its broad reach simply end up convoluting the whole thing and confusing the value proposition?

As research for this article, I have reached out to a couple of friends who specialise in the management sector to ask what they think of the Zenhomes offering.

Rajeev Nayyar, MD of Fixflo, has concerns about this one-stop-shop approach, suggesting that “it’s unlikely that a single solution can deliver on the ever-increasing demands of both external users (e.g. landlords and tenants) and internal users (e.g. property managers)”.

I can only agree - Zenhomes seems to have aspirations based around market disruption rather than simply innovation.

The difference between the two is simple: innovation improves on the current practices and standards of an industry or sub-sector, while disruption totally uproots those normalised standards and replaces them with something entirely new.

Zenhomes seems not too bothered with innovation - its platform is based around the idea of solving every problem a property manager might have simply by interacting with one central, united system.

Nothing it does is, strictly speaking, particularly innovative. Instead, its goal of creating a one-stop-shop location looks like an attempt to totally disrupt the current norm of German, and eventually European, real estate management practices - essentially usurping the need for private landlords to hire a property management team of any sort.

Rajeev goes on to suggest that, rather than trying to build and offer everything under one roof, the truly successful and often disruptive platforms are those which operate “an ecosystem-first approach of complementary, integrated, specialist solutions”.

He points to billion-dollar companies like Salesforce, Xero, or, closer to home, MRI’s partner programme or Reapit's 'Platform as a Service' concept,"

Does the UK market want a Zenhomes-style offering?

€13 million is a heady sum, especially for Series-A funding, so we can assume that someone out there has great confidence in Zenhomes’ vision. The company itself certainly does:

“The real estate market is changing,” says Jannes Fischer, CEO and founder of Zenhomes.

“Investors are increasingly young players with modern assets. Our goal is to make Vermietet.de (Zenhomes’ core brand) the leading aggregator of housing in Germany within 2020.”

Germany might well be a safe target for disruption, only time will tell. But regardless of its success overseas, is an offering like this something that would work in the UK market? And if so, is it something we even want to see?

Kristjan Byfield, co-founder of The Depositary, has more than a few things to say about the matter.

“It all appears to be ticking the right boxes in the digitisation of property and tenant management, but I do have some key thoughts on the issue,” he says.

“I understand the appeal of Zenhomes for a portfolio landlord, but most UK landlords have one-two properties. Are they going to wrap their head around a comprehensive tech platform just for one property? I personally don’t think so.”

“Equally, I see the value for portfolio landlords but I’m certain that many will prefer to engage an agency and outsource the whole workload. That, or they will already have an in-house team/process which makes convincing them to migrate very tricky.”

“For all the stick letting agents get for being ‘old-fashioned’ and resistant to change, I think this is amplified even further with landlords. The time required to assess digital offerings, adopt and use correctly to maximise benefits - if a company struggles to allocate resources to this then the majority of landlords simply won’t adopt and the cost to acquire them will be unsustainable.”

“This is probably the biggest faux pas of digital operators in this space - underestimating how difficult and costly it is to acquire landlord clients in the UK.”

Once again, I can only agree with these comments. If we assume Zenhomes’ vision is one of disruption, the question has to be, is €19 million enough to enable it to do so?

It would be naive for me to sit here and write that I don’t think Zenhomes will be able to bring its offering to the UK because, until it happens, you can never say never.

For the point of discussion, though, let’s say it gets all, or at least most, of the individual landlords on-side; then, it has the challenge of winning business from institutional landlords and the real estate firms who offer property management services.

Zenhomes say they do all the donkey work that agents and managers currently do. This means disintermediating the industry.

While this isn’t impossible, it is likely to be met with a fair amount of hostility and the amount of cash it’ll need to fight through it all will be immense - more so than €19 million.

Another important aspect of UK real estate that a platform like this would struggle with is legislation. Kristjan had some things to say about this, too…

“Probably the biggest threat to the expansion of digital offerings in the UK is the current and expanding legislation framework.”

“New powers for tenants to sue landlords, increasing licensing schemes, industry licensing, and the imminent requirement of landlords to join ombudsman services - this all pushes landlords towards a more full-service offering,” he says.

“I’d argue that compliance is the biggest burden/requirement of being a UK landlord today. The choice many are faced with is between either ‘muddling on’ or engaging a full-service agent and entirely outsourcing the burden.”

Now, this angle presents something completely different in terms of industry challenges. Legislation puts fear into everyone, or at least it should.

Some people go so far as to say that the very reason for technology is to help enforce legislation. An easy example, albeit outside of direct real estate, to illustrate this point is driverless cars.

If there is a legislative change that impacts the rules of the road, it may take time for this to trickle through to all drivers (assuming we are still living in a world familiar to the one we know today).

Some drivers will grasp and embrace the change immediately, some will not realise there is a change occurring, and others will realise it but choose to ignore it all the same.

With technology, a solution is found and then deployed. With cars, this occurs centrally and then rolls out to the driverless fleet. Everyone, immediately upon the deployment of the solution, will then adhere to the new legislations put in place.

Therefore, while I wholeheartedly agree with Kristjan here - there is no one better placed to know and have experienced these frustrations - there is every likelihood that someone, somewhere can and will build a solution that will evolve with the legislative changes.

This system will be judged on its speed of roll-out and its ability to rebuild when legislative changes are made. Not only would this be the easiest way to help ensure everyone follows the rules, it would also help ensure that both sides of the deal - industry and consumer - are equally protected and educated at the same time.

The question is, again, will €19 million be enough to do this? Would any figure be high enough to build something so agile to support everyone, no matter who they are and how the law changes?

In conclusion: it is not unreasonable to think that a platform like Zenhomes can innovate or, if it has enough money, disrupt the property management sector.
But it’s about more than money. It’s about being willing and able to evolve with legislative requirements, industry trends, and consumer pain points. Just because something has great value today, it does not guarantee great value tomorrow.

Humans are really good at being fluid and flexible as the world around them changes, it’s much harder for technology to do the same.

Any PropTech solution that thinks it can usurp professionals and disrupt the norm must have this knowledge at the front of its mind. Otherwise, simply believing that technology and money alone are enough, they will quickly be culled by the industry and its customers alike.

*James Dearsley is a leading PropTech influencer and commentator, and is co-founder of PropTech platform Unissu. You can follow James on Twitter here.