At OpenCorp, we recognise the wonders of artificial intelligence (AI) and how it is transforming countless industries. It excels in collating and analysing vast amounts of data faster than any human could ever dream of.
AI and Property Investment
In recent months we have started to see videos popping up by property investment experts that suggest they have cracked the “property investment code” by developing a data model, or an algorithm, that tells them which markets are going to boom. Understandably, many people are curious about this and have reached out to me as OpenCorp’s resident “Property Nerd” to verify whether the old rules of property investing need to be thrown out as a result of the AI boom.
The truth is, as much as I love numbers, and deep data, investing in the residential property market is not just about crunching numbers; it’s about understanding the intangibles – the things that aren’t easily captured in data. The elements that contribute to the potential growth and viability of a property market are multifaceted and often deeply human.
Consider infrastructure investment, for example. A new highway, school, or shopping centre can significantly enhance a suburb’s appeal, driving property prices up. I have seen this firsthand as a property developer, and an investor, that has spent decades dealing with local Councils, canvassing ideas with community interest groups to get feedback on major project proposals, and squabbling over who bears the cost of major infrastructure with State and Federal Governments. There is no verifiable source of data with this knowledge that is available on the internet. It is constantly evolving in offices, town halls and on project sites around Australia. As such, there is no data model that this information can be fed into.
But even knowing what kind of infrastructure is being planned wouldn’t be sufficient to determine its future impact on property prices. Understanding how it is being received by the local community, or how it might impact the socio-economic landscape requires human insights and on-ground intelligence. AI, bound by its data-driven parameters, struggles to comprehend these dynamics.
Similarly, the release programs of property developers or planning constraints are influenced by myriad factors, from government regulations to social trends. Understanding and anticipating these require not just data but also nuanced knowledge of the local culture, the property landscape and regulatory frameworks.
What AI Doesn’t Understand
Consumer sentiment, another crucial factor, is especially elusive for AI. Emotions, fears, hopes, and dreams drive human decisions, and while AI has made strides in sentiment analysis, it’s still far from perfect. People’s emotional responses to events such as economic downturns or political changes can significantly impact their investment behaviour, and these responses are often subtle, complex and ricky to model.
Just think about the changes that have been wrought by the Covid lockdowns, and how it has affected housing preference and travel patterns.
Finally, knowing what kind of properties will attract tenants and get a premium valuation involves a level of human intuition and understanding. What makes one house a better investment than another? Is it proximity to schools, the warmth of the neighbourhood, or the use of materials, colours and “feel” of the living area? AI may offer trends and general preferences, but the human touch is key in understanding specific market desirability.
Algorithms vs Due Diligence
Over the last 30 years, we’ve seen all manner of gimmicks used by fresh-faced property experts to fool unsuspecting investors into thinking they have the holy grail of investment tools. The latest of these gimmicks is the “all knowing and all powerful” algorithm, or data model, that can predict and map the next hot spot. If a person is relying on an algorithm to tell them which properties to acquire, and not doing a vast quantity of human-led due diligence, then the risk of miscalculation would be huge and investors should be wary.
At OpenCorp, we believe in harnessing the power of AI, but we also understand its limitations. Our team use AI in a range of our activities, from sourcing economic data and reviewing the historical performance of our portfolio, to monitoring construction pricing and build programs. But AI is a supplement to the knowledge of our experienced advisors and researchers, as AI is only as good as the data you provide it and the questions you know to ask, which can only come from decades of on-the-ground knowledge, regulatory expertise, and an innate grasp of real estate sentiment which enables us to create personalised residential property investment strategies that continue to beat the market.
Remember, in the world of property investment, data is a tool, not the architect and you should not be fooled by modern-day gimmicks.
P.S – in case you are wondering, the image used with this article was created using AI.