One of the most significant contributors to economic growth and development in India, the real estate sector has come a long way in the past decade. According to a 2021 report, the sector is expected to reach a market size of $1 trillion by 2030 and contribute 13 per cent to the country’s GDP by 2025. However, the real estate industry is under constant pressure to deliver top-level service, maintain safety standards and manage their operational costs optimally.
In the wake of global challenges, there has been a sudden rise in the input costs. According to CREDAI NCR, input costs have gone up by 30-40 per cent in recent times, along with prices of some raw materials almost doubling in the last two years. Further, rising crude prices, supply chain disruptions and skyrocketing prices of construction materials have contributed to cost overruns for most projects.
Often, construction projects run late, exceed budgets and experience delays due to unprocessed tasks and imbalance supply of man and materials. Factors like slowdown on leasing due to pandemic, shifting models to hybrid working severely impact the cost drivers in terms of finance cost, employee costs, construction costs, operations costs etc. resulting in additional costs and a project with expensive outcomes.
Digital Transformation Toolkit For Cost Optimisation
Post-COVID-19, digital transformation has become the way to operate, consume, understand, and deliver. Global Proptech investments saw highest rise of amount $9.5 billion during covid in year 2021. This was further increased by effective roll out of 4G network, increased internet user base and advanced technological interventions such as artificial intelligence (AI), internet of things (IoT), Big Data, drones, virtual reality (VR) and augmented reality (AR) as well as introduction to Real Estate Regulatory Authority (RERA), and goods & services tax (GST).
Currently, disruptive technologies are sweeping the real estate sector, with developers embracing the usage of some of these tools to better address construction work, improve efficiency, reduce costs, and eliminate errors. Cost management is all about planning and managing budgets. It helps project managers estimate the cost of the project and control budget overruns by setting up the right processes and software in place.
Digital Twin in construction, through modelling of building information and saving costs, smart facility management for predictive and prescriptive repair and maintenance, process automation tools to reduce employee costs on transaction-based activities etc. enhanced the overall customer experience in the realty sector. Various real estate service portals use big data analytics and real time data to analyse the needs and target customers, create customer profiles and reach out to them to serve their needs. An array of technologies such as BIM, ERP, Virtual Reality and IoT have brought about efficiency and accuracy in the construction sector.
While Building Information Modelling (BIM) is widely being used to create digital representations of buildings and improve construction efficiency by reducing 5 per cent of wastage on construction sites. On the other hand, ERP provides real-time data enabling the smooth running of business activities.
While cloud computing and digital twin can answer customer queries and negate errors through simulation and predictive modelling about pre-construction risk analysis; benchmarking, property analysis etc, Process efficiencies can be brought by use of technologies like RPA and Python based automation tools and workflow automation.
AR/VR construction modelling improves the buyer’s experience of space and can design the space as per customer’s requirements. Internet of things (IoT) helps with real-time monitoring of HVAC components – heating, Ventilation, cooling (HVAC) thus providing the occupants with interruption less services.
Automation along with Artificial Intelligence (AI) helps builders to maintain ESG requirements, property management, and other reporting obligations. Machine Learning based recommender engines understand the customer’s requirement and can provide contextual recommendations thus minimizing brokers intervention and brokerage and better curation of searches online or better deals offline.
Almost 90 per cent buyers are using AI and machine learning in order to do site visits, personalizing, designing their home and offices, and experiencing the location through 3-D models. Not only customers, AI is helping real estate developers by supporting accurate virtual property valuation, mortgage and lending facilities as well as lead generation . This digital change and heightened customer expectations has impacted the requirements of such tools that can enable and raise operational standards as well as efficiency to cater consumer demands.
Blockchain based solutions are redefining the ways in which bookkeeping, property document management is done currently which leads to reduction in frauds across the industry. A property can be tokenized and can be traded online. Blockchain, not only reduces or eliminates the role of intermediaries but it also automates the entire process via secured transactions. Certifications and compliances can be vetted by blockchain as well as smart financing, smart loans and timely project deliveries through blockchain are becoming the trend.
Digital procurement platform along with smart sourcing has improved construction materials as the suppliers also produce sustainable building materials such as smart concrete, memory steel, nano materials, self-healing concrete, concrete canvas, electrochromic materials etc. By using such materials, the buildings can withstand any natural climatic change making it controlled and predictable. Smart materials usage also supports ESG standards and helps the developers to achieve them easily. Such materials usage may not be economical as project cost but in long run, it’s a value for money, efficient and operationally sustainable deal by upcoming global standards in future.
If you are in the real estate business, you should think about where you as a company stand in leveraging these technologies to drive value chain with quality products for residential or commercial buyers. Digital no longer remains as an aspiration but is a norm now. Reports suggest that by using digital cost management tools, not only cost savings increased by 12-20 per cent, the buyer and seller save on time, resources resulting in quick relevant searches with faster process to reach to the end of the deal.
In future, we estimate that Indian real estate customers will be completely technologically inclined and with hybrid working patterns, there would be an increase in demands of sustainable buildings through seamless transactions between buyer and developer. As one of the main drivers of the Indian economy, Indian real estate players should invest, learn, and apply advanced and automated technologies across the supply chain. Cost management isn’t just about cutting costs. It is about achieving higher returns on investment, full optimisation and ensuring the business remains relevant.
(The author is management consultant and partner-digital strategy & transformation, Grant Thornton Bharat)
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