“Real estate transformation is the next big opportunity in Latin America”

The housing deficit (the gap between available housing and demand) in Latin America and the Caribbean is estimated at more than 43 million flats. The problems that hinder access to housing, according to the Inter-American Development Bank (IDB), include the lack of banking services and the low penetration of financial services, which hinder access to financing, combined with industry inefficiency, which is weighed down by long and complex bureaucratic processes.

“The housing market is my country’s greatest asset”, says Sebastián Noguera, co-founder and President of Colombian company Habi, but in Latin America the market “is extremely inefficient because it hasn’t taken advantage of all the benefits that technology has to offer”. Solutions like the one offered by this propetch (property + technology) unicorn, which also does business in Mexico under the name Tuhabi, are trying to change the situation. 

Selling and buying used homes through digital channels, Habi’s business model is based on the acquisition (for which the seller receives payment within 10 days), renovation and sale of flats (the latter within an average turnaround of 45 days). In an interview with BBVA Spark, Sebastián Noguera talks about the history, strategy and unique offering of a unicorn on the rise.

Before Habi, your professional career spanned everything from the creation of the online supermarket Merqueo to the design of digital financial products at Banco de Bogotá. What led you to create Habi in 2020 together with co-founder and CEO Brynne McNulty?

I’ve always been passionate about trying to solve the most basic problems of Latin American consumers through technology. The thinking behind my first venture, an online supermarket, was that many people in Colombia don’t have a car, plus the traffic in big cities in Latin America is extremely complicated because of the high density. With an e-commerce experience we could provide access to a broad portfolio of consumer products at competitive prices and save people a considerable amount of time.

But we saw that more than 80% of the orders were paid in cash, and almost half of them on payday. The reality is that people didn’t have a way to pay or access to credit, so they could almost only do their shopping on payday. I started to fall in love with that problem and ended up facing the challenge of mobilising Banco de Bogotá, the second largest bank in the country, in a digital transformation process to make those means of payment easier and to provide access to short-term credit that would give people access to products when they needed them.

Then we tried to simplify the same access to housing credit. But we found that, even though we could issue a credit card in five minutes, a mortgage loan took six months to complete. And that’s because we don’t have the data streams to tell us the value of a property in Latin America, for example. The entire process of appraisal, review of the public deeds of the property, constitution of the deed; it took several months.

There are also no marketing networks, no reliable environment where you can buy your home. My partner, who is from the United States, faced a lot of problems buying her home here. She spent almost a year looking at houses, because there were no good platforms or big brokers to help her make good decisions. Our purpose with Habi was to build that infrastructure that would make the real estate market much more efficient.

The IDB says that proptech has a key role to play in Latin America when it comes to facilitating access to housing. How do solutions like Habi succeed in boosting and optimising the sector?

The IDB has just approved a line of up to 50 million dollars for our business in Mexico, based exactly on the mission that we’re fulfilling. This line allows us to inject liquidity into thousands of people who have homes, who have a valuable yet frozen asset.

The owners of housing stock in most developed countries are starting to become institutional players, investment funds, multifamily owners… In Latin America, on the other hand, housing is owned by the middle class. Middle-class savings are fully invested in this asset. But due to the lengthy buying and selling process and the lack of liquidity, information and legal protection, this enormous value is frozen. Families then accumulate loans, resort to informal financing at predatory rates or have no access to financing. This is why our mission is so important: because it unlocks an asset that provides access to considerable social mobility.

Among the solutions that Habi offers its clients are the Habimetro home value calculator and the 100% digital deeds signing process, implemented together with the Ministerio de Vivienda de Colombia. How have you developed the technology to materialise your business idea?

Two technologies, ‘big data’ and ‘machine learning’, are the foundation on which we’re able to build a great deal of intelligence on the housing market. We collect loads of information (on the street, from window signs, from our financial allies, from the government, from real estate portals, from our brokers) and we combine, prioritise and organise it to create an up-to-date, reliable and dynamic database that allows us to understand property prices and asset liquidity.

We have artificial intelligence models on top of this database that we can use to automatically price a significant number of our properties. We also have appraisers, but more than 70% of the offers are made using our automatic pricing algorithms.

Habi’s expansion strategy in Mexico has involved the 2022 acquisition of local companies OKOL, parent company of Propiedades.com, and Tu Cantón. Why have you opted to expand your operations through acquisition?

When it comes to the real estate business, understanding a market thoroughly is vital, not only at a country level, but also at a city or neighbourhood level. But building sales networks and collecting quality data is time-consuming and complex. That is why, when we decided to enter the Mexican market, making these two acquisitions was so important: Tu Canton was the largest seller of new housing and had also been working in pre-owned housing for a couple of years, and Propiedades.com is the website with the largest inventory in Mexico and had a lot of data on housing, prices, sales times, all of which were extremely useful for the construction of our analytical models.

This combination allowed us to grow rapidly in Mexico (between four and five times faster than in Colombia) and today we operate in Monterrey, Guadalajara, Mexico City and the State of Mexico.  Having the local know-how and the expertise of both companies, two of the most experienced real estate technology players, accelerated our understanding of the market.

Habi reached unicorn status after raising $200 million in its latest round of funding. It has also raised debt capital from BBVA Spark and VPC. What was the key to the company’s success in raising funding, despite the decline in venture capital (in 2022, Latin America’s proptech sector attracted 65% less venture and growth equity funding than the previous year)?

Venture funds are investing in the major opportunities that technology is unlocking. The housing market is the single biggest category that any country has, and generally represents a significant percentage of GDP, but it is also a sector with very little digitisation. That is why the digital transformation of the housing sector is going to happen and in Latin America, where there are no institutional players and the lack of infrastructure hinders access to mortgage credit, the opportunity is much bigger. Transforming the real estate sector with technology is the next big opportunity in Latin America.

Our focus on building this vast layer of data and information and these tracks to make the market work more efficiently is extremely attractive to investors. That’s why, even though the market has cooled, and it’s become much harder to raise money in the past year, in mid-2022 we raised one of the largest rounds in Latin America.  Es un negocio que tiene ya un tamaño importante y un claro camino a la rentabilidad, y eso nos ha permitido tanto atraer inversionistas de riesgo como proveedores de deuda que nos han permitido seguir creciendo a muy buen ritmo, a pesar de las complejidades del entorno.

It’s a business that is already quite large and has a clear path to profitability, and that helped us to attract both venture capitalists and debt providers that have allowed us to continue growing at a strong pace, despite the market complexities.

Earlier this year, BBVA Spark identified a series of tech trends that will shape 2023, including generative AI, APIs and superapps to increase efficiency and digitise operations. Which innovative technologies and solutions do you think will shape the direction of the proptech sector?

There are two major opportunities: the first is the use of machine learning to process massive volumes of data for making robust financial decisions, as well as to provide online legal analysis. For example, a few months ago we launched a plataform together with law firm Brigard Urrutia in Colombia to completely digitise the scanning of documents and title studies using artificial intelligence

The second is natural language processing models [the field of artificial intelligence that drives communication between machines and humans], which make it possible to automate communications in processes that are as complex as buying and selling a home or accessing credit. Chatbots can provide personalised advice to people with all the information they need in a simple way, which will help them make better decisions. Today, Propiedades.com also lets users enrich a post [using generative artificial intelligence through ChatGPT] by generating automatic text.