Why establishing an AI real estate FinTech startup is so hard in Australia
Aug 15, 2018
On paper, RiskWise Property Researchhad everything in hand to instantly become the leading FinTech startup in Australia when it came to real estate.
With a strong founding team packing impeccable resumes and a unique algorithm combining AI technology with risk-assessment of residential property, it looked certain to establish itself very quickly as the most innovative research house in Australia.
Not only was it able to deliver data that no other research house in Australia could do, more importantly, for the first time ever, it was able to give buyers, brokers and banks a real picture of an individual dwelling and provide them with a full risk assessment.
The company was founded in 2016, so why did it take more than a year for people to buy-in?
CEO Doron Peleg believes there are a number of factors that meant it took the startup a while to gain momentum.
“Firstly, no one really believed that real estate could be really risky, in the sense that the term ‘risk’ existed only in theory. Also, all ‘players’ in the property game had similar objectives: for the banks it was ‘approve the loan’, for developers: ‘develop high-rise unit blocks’ and for investors ‘get rich quick’. Investors have been particularly impacted as the market is full of spruikers promoting the latest so-called “hotspot” and offering their own free reports to property punters. It was very surprising to see adults spend more time researching cars than on a half-a-million property, that could make a financial impact on the rest of their lives,” Mr Peleg said.
“Why would you pay for a report when you can get one for free? They failed to understand that ‘if you don’t pay, you’re probably not the client’. The point is that our algorithm can instantly generate a comprehensive report by measuring dozens of data and information variables (including more than 30 macro-economic) against a broad range of risk factors, ultimately scoring the property’s risk rating from low to high.
“It’s much more indepth and comprehensive than any other available in Australia and obviously, we are fully independent.
“But it didn’t mean we didn’t have some hurdles to jump to get the message out there. We decided to dedicate the first year to the corporate segment and property professionals and simultaneously to market education of property investors. We realised it was the best way to gain trust and credibility.
“We started releasing our reports to the media and relevant stakeholders. People suddenly saw we were able to predict market parameters, and particularly the risks, based on AI and our unique algorithm.
“Unlike other so-called experts, Riskwise uses a future-view approach to the market. We are the only company that drills down to the individual property level up to the state level to provide the best decision-making tools around uncertainty.
“In a sense we’ve become myth busters, debunking the so-called ‘hotspot’ phenomenon in quite a few cases. Who would have believed in 2011 and 2012 that investing in mining towns was not actually a good idea or that high crime areas can enjoy solid capital growth in the right conditions?
“More than a year ago, our algorithm enabled us to identify that Sydney was at a tipping point and units in Brisbane would carry a high risk of significant oversupply and price reductions.
“The new insights provided by this technology is revolutionising the way we assess risk on properties, the due diligence process and, ultimately, any lending and buying decisions.”
Mr Peleg said they learned a lot during that first year which helped them focus even more on the type of deals and clients they wanted to attract.
Slowly, but surely, the company started gaining people’s confidence and, today, RiskWise is a recognised and trusted brand.
Mr Peleg said most property experts were looking in the rearview mirror, meaning they looked at the history of the area to try to assess its future.
“Basically, one of the reasons for the current uncertainty in the property market at the moment is that, in general, the practice of the real estate industry from a risk-management perspective is to look to the past, and not the future, to determine risk,” he said.
He cited the example of a panel of experts who, in August 2011, identified the 100 hotspots in Australia without assessing the risk properly. These included a large number of areas in the mining states of Queensland and Western Australia where property prices have since collapsed.
“Our algorithm estimates the projected risks and returns for residential property, and also provides risk advice and research services across the entire spectrum from individual properties to developments, suburbs, regional areas and states with a very high level of accuracy,” Mr Peleg said.
“In addition to factors you would expect to see in such analysis, for example location, suburb, population and economic trends, it also takes into consideration very complex macro aspects such as credit restrictions, the Banking Royal Commission and the potential impact of changes to negative gearing and capital gains tax on each area in Australia.”
The algorithm has proved so successful the company is planning a move into New Zealand, followed by the UK and then the US.