Proptech: Using data to optimise the rental market

This article first appeared in Digital Edge, The Edge Malaysia Weekly, on November 29, 2021 - December 05, 2021.
Proptech: Using data to optimise the rental market
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The local housing rental market in urban areas is in an unusual state. On the one hand, the lack of affordability is driving the younger generation to rent at steadily increasing rates. On the other, many properties remain vacant, with the property overhang gnawing at owners for many years.

According to LiveIN CEO and co-founder Keek Wen Khai, investors are driving up rental prices because they want to make good on their investments and ensure a positive yield. As a result, there are unfurnished condominiums in the Klang Valley going for rentals of more than RM2,000 a month, depending on location — an unfeasible sum for a fresh graduate who has a monthly salary of only about RM2,500. 

“What the younger tenants will do is to find housemates. To save on costs, they have to sort out all the basic furnishings and sign up for internet packages under their own name,” says Keek.

“Most of the time, their living conditions are compromised, one way or another. The space could be too crowded or overly partitioned, or they may need to travel long hours to work. This has been a problem for years, and there are still no regulations to cope with these issues, especially that of overcrowding from too many partitions.”

There is clearly both supply and demand in this market but it is hard to find a match, which has resulted in many new condominiums being only half occupied, at best, or empty, at worst.

Properties in the LiveIn portfolio have managed, however, to achieve a 90% occupancy rate, with a churn rate of less than 1% among property owners. Keek explains that his company’s business model plays a big role in obtaining these attractive figures, thanks to the keen focus on price and cost optimisation as well as data collection. 

Doing things differently

LiveIn is a proptech company that takes a digital approach to property management. It partners with property owners, including hoteliers and property owners en bloc, and rents units out mainly to fresh graduates and tertiary students. All units in its portfolio have standard furnishings, with all miscellaneous fees included in the monthly rent.

To address the urban rental issue, LiveIn’s business model is built on three core principles. First, the company advises property owners on their capital expenditure (capex) based on data collected. Second, rental prices are also determined by LiveIn and its algorithms, instead of the property owner. Finally, the company seeks to provide owners with a stress-free experience by assuming the rental collection and property management role while collecting data. 

Keek explains that many property owners either make furnishing decisions based on intuition or do not furnish the unit at all. LiveIn tries, however, to predict an owner’s return on investment (ROI) by referencing the capex and income figures of other properties that it owns in nearby neighbourhoods. Once a capex amount is derived, the company then provides the necessary furnishing recommendations. 

“Property owners are mentally prepared to spend a certain amount to furnish a unit, but there is no data telling them exactly how much they need to invest. Based on our experience, we can advise them to invest in certain items, such as a more durable water heater brand, that will increase their ROI,” says Keek.

“This concept applies throughout the property owner’s customer journey, not just at the beginning. For instance, there is a specific en bloc property owner we are engaging with. We have a maintenance and churn report that tells us that, by building a laundromat, we can increase their rental income by a certain percentage.”

Rental prices are also traditionally negotiated through property agents, who act as the middleman, with the property owner having the final say in the matter. Shifting rental pricing control away from the owners to LiveIn makes the latter much more flexible in its pricing, allowing it to determine the market rental rate for a given unit as quickly as possible. 

By constantly monitoring multiple variables, such as occupancy rates, rental prices and furnishing conditions, LiveIn’s algorithms can formulate a rental price that strikes the right balance between tenancy demand and ROI. For buildings with zero occupancy rates, LiveIn will provide an early-bird rental price to attract tenants as quickly as possible and serve as a baseline for the rental algorithm.

For instance, to attract tenants, an empty building may offer an early-bird promotion of RM1,500 a month for a unit. If demand is overwhelming, and the property achieves a 30% occupancy rate earlier than expected, LiveIn will then raise the rental prices for the remaining units and lease renewals.

“Some people may find it unfair to property owners who rented out their units to early birds, because later tenants will provide better ROI. But the alternative is for the unit to remain empty for several months, which provides zero income,” says Keek.

“That is why we came up with a process to rent out units as quickly as possible and determine the market rental rates using data and technology. Tenants who managed to obtain a 12-month lease on the early-bird promotion will benefit as well. Once the lease is up and they find that the renewed pricing is no longer suitable to them, we [can offer them] many other budget-friendly options or even other new buildings with early-bird promotions as well.”

In addition to handling property owner relations and having an online listing platform, LiveIn physically manages the properties, including collecting rent, maintenance and cleaning. Keek says few companies attempt to combine the digital aspects of proptech and the tedious work of property management.

“Market players tend to focus on either the online portion, which is the listing platform, or the offline elements, such as rent collection and furnishing. This is because these two elements do not jive well with each other,” he explains. 

“For example, a player would help property owners build a rental management software to help them monitor the rental collections from their properties. The solution can notify the owner of tenants who did not pay their rent on time. Owners still have to chase for the rent themselves, though, and the same goes for property furnishing and so on.”

On the flip side, managing properties not only allows LiveIn to better understand the needs and habits of tenants but also helps keep the buildings in good condition, Keek says. For instance, providing weekly cleaning services is an indirect way of ensuring that the properties and furniture are adequately maintained.

The race for more data

LiveIn’s business model is built on optimising rental rates, capex and tenant demand with the help of data, but it has its challenges.

Much of the data needed to make predictions and come to key decisions is collected and processed internally through existing LiveIn properties, making it difficult to make predictions if the company lacks a presence in the vicinity. As such, much of the optimisation process is still conducted manually through professional consultation, with limited data available online. LiveIn also focuses on occupancy rates as its success metric, using cheap rents as the baseline for future predictions. 

“We are also very selective when it comes to the types of tenants and properties we cover. For example, we refrain from targeting family tenants even though there is a huge market for this segment. We are focused on our product market fit. The wider the geographical area we cover, the more data we collect, and the stronger our internal algorithms and indices over time,” says Keek.

His goal for LiveIn is to gather enough data eventually, so that property owners can determine their ROI through a simple slider feature on their website. He explains that if they have enough data, there will be so few variables left to consider that the algorithms would need to have only the unit size and location to make decent predictions.

Keek is confident of his business model. With the many delaying marriage until at least 30 years old, he seeks to capture the young adults to pre-marriage demographics, many of whom are less interested in homeownership because of rising property prices. 

“In Asian communities, buying properties always seemed to be the default. There is still the traditional mindset of wanting to revive the property market. But the new generation is more focused on building lifestyles instead,” he says.

“They would rather spend the extra cash on better locations. So far, there have been few solutions in the market that cater for those who view rentals as their default. Even banks and developers push rent-to-own initiatives. We want to cater for that market, and I’m very optimistic about its future.”