savills blog: Smart homes: Where technology and real estate meet

Smart homes: Where technology and real estate meet

China’s residential market has developed in leaps and bounds over the last two decades, in terms of size, quality, price and importance. With values as high as they currently are home owners and tenants are demanding more from their homes. This demand has coincided with a technological revolution that is impacting every aspect of our lives. While much emphasis has been placed on the development of new retail, mobile payments and ride hailing, the residential market is also starting to feel the effects.

Growth in wireless technology has led to a surge of interconnected, smart devices that apply to multiple facets of our lives. In China, with giants like Huawei - leading the charge in 5G technology and the Internet of Things (IoT), smart home technology—though in many ways still in its infancy—is allowing a robust ecosystem of smart appliances to proliferate the market. As China’s middle class continues to grow and the technology continues to advance, many home buyers are realizing that smart home technology can make their lives more comfortable, save them money on electricity costs, or boost the resale value of their homes.

The smart home market

For the Chinese residential market, the two most important smart home applications are energy and comfort. The government has been pushing to improve environmental standards throughout the country and there are numerous ways that energy consumption can be optimised through smart home technology. Smart meterage and grid technology can transfer and distribute electricity throughout different parts of the day so the electricity is used and stored more efficiently. According to a report from Navigant Research, China has north of 469 million smart meters by the end of Q3/2017, more than any other country in the world. Households in China consumed 13.7% of total electricity in 2016 (after manufacturing and utilities production), up from 10.8% in 2000 at a CAGR of 12.4%. This provides major incentives to optimise household electricity use.

Figure 1: Chinese electricity consumption by sector, 2016

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Source: CEIC, Savills Research

Speaking of consumers, comfort and convenience is a major driver for innovation in this field. Disposable income is growing fast in Chinese cities and this money can be ploughed into homes to improve comfort levels, saving valuable time or increase the home’s resale value. Experts believe that once this trend takes off in China (and Asia more broadly), it will spread like wildfire. According to a report by Technavio, the Machine-to-Machine (M2M) market in the Asia Pacific Region was only valued at $0.8 billion in 2016 but is expected to reach $5.4 billion by 2021.

Home-grown brands are taking advantage of this growth, with soon-to-IPO Xiaomi (potentially valuing it at US$100 billion) leading the charge. Starting as a smart phone manufacturer, Xiaomi now generates 20% of their US$18 billion sales revenues from smart gadgets and appliances while 30% of their investment goes into the ecosystem for smart homes.

While China does not yet have smart home hubs to rival the likes of Google Home and Amazon Echo, cooperation between the likes of Xiaomi and Baidu announced at the end of 2017, along with advances in AI and the launch of Baidu’s Raven H, means that China is not be far behind. Baidu is not alone in this endeavour with the Chinese market apparently having more than 100 smart speaker brands.

Investment capital is also being funnelled into companies such as Broadlink which is looking to create Broadlink DNA, a Platform-as-a-Service (PaaS) which allows customers the ability to create and manage smart home applications, thereby helping the market mature on the mainland. Broadlink has also reportedly collaborate with more than 80 leading Chinese developers to provide smart home technology and solutions.

Case study: Sino-Ocean Tianjiao, Guangzhou, the first WELL certified residence in China

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Many local developers, such as Sino-ocean, Vanke, China Resources, Hengyuan Group, and others, have launched residential buildings complete with WELL certification—an internationally recognized certification that focuses on optimising internal living environments’ impact on human health. Sino-Ocean’s Tianjiao property in Guangzhou became the very first WELL certified residence in China. The property adopted numerous smart home technologies: outdoor air system, air and water purification systems, a circadian lighting system, and others, all of which enhance the quality of life for residents and property values for the landlord.

The future: The learning curve

China has proven to be one of the fastest adopters of technology in the world, whether it be smartphones, ecommerce, mobile payments anything else. This, coupled with increasing income levels and a strong cultural desire to invest in real estate, will undoubtedly encourage growth in smart home technology. As China plows more money into advanced technologies like artificial intelligence, 5G networks, and autonomous/new energy vehicles, technology has become a point of pride for the country. It will only be a matter of harnessing the right combination of technology, economics, and consumer demand to push forward the smart home market in China.

Smart device manufacturers are likely to continue to work closer with developers and operators of rental and hospitality properties to showcase functionality and spearhead adoption. Announcements such as Raven H being installed in more than 100 rooms owned by Intercontinental Hotel and Resort are likely to become more common in the future.

The adoption of smart homes could also align with government priorities of protecting the environment via reducing energy intensity and developing China’s native tech & AI sector.