27 Jul 2023John Macdonald

Is the value of your property portfolio slowly dying because of decaying buildings?

Advances in artificial intelligence tools can highlight the risks

Putting your money into bricks and mortar has always been considered a safe way to invest. But buildings, like everything else in life, need to be maintained. While humans are still reaching their peak between ages 20 to 30, this is when modern developments start to become past their prime.

Without being maintained, properties can crumble, fall apart, and with their value lost your investment is either diminished or in some case, even totally destroyed.

For residential landlords, there is also a legal requirement to keep up standards above a minimum in buildings for tenants. Changes in regulatory reforms came from the Homes (Fitness for Human Habitation) Act 2018 which aimed to raise overall property standards in the rental sector and to make it easier for tenants to hold their landlord to account in cases where standards were not being met. Increased focus on housing disrepair | Gallagher UK (ajg.com)

But in this world of the rapid advancement of AI, there are now tools in the market for both commercial and residential landlords, to identify potential risk and to help prevent a reduction in the value of the portfolio..

Firstly, though, to show you just how easy it can be for a building to fall into decay, we know of one example of an Italian car dealership that had a bank take security over the showroom, and another separate example of a closed shopping mall.

When newly opened, the Italian dealership’s showroom was described as ‘glorious and shiny’, but then the business went into administration and subsequently defaulted on its mortgage loan payments. The bank started to recover the loan through the lengthy legal process, eventually resulting in foreclosure on their client and taking ownership of the car showroom.

Vandalism and water damage caused the building to deteriorate, rendering it nearly worthless. Initially, there was potential to trade the asset at a higher value, but over time, it became completely valueless and required demolition. This often results in a negative value due to the high costs involved in clearing the site, which can exceed the land’s value.

In another case, a closed shopping mall had its escalators removed to help with the cost recovery process and to eliminate the need for them to have maintenance. Stripping these out also meant it held less value to a potential buyer and was less easy to sell as it became obsolete.

Detecting and predicting deteriorating properties earlier

Now, AI-driven tools exist that can give a “health check” for your property before it falls into disrepair or becomes obsolete. They can give insight into the real estate markets and how individual assets are performing and that is without wasting time visiting each property you hold in your portfolio.

This can be done by taking asset data from any available documents, images and files, extracting and analysing the content using NLP (natural language processing) and applying AI methodologies Pre-trained models can pinpoint specific information normally found in real estate and loan documentation in most languages.

After processing the raw information, it’s structured into a reliable, comprehensive form for further analysis, and reporting. That analysis may include computer vision technology, which can be used to assess the age of a building, what it’s built from, and its condition from ‘observing’ internal, and external images.

Although currently used primarily on infrastructure, Canon is one company already using AI to diagnose cracks in concrete structures. According to its website, Detecting Cracks with AI Technology | Canon Global the image-based inspection system the company is developing comprises three processes: Image capture; Image processing, and Defect detection.

So why use AI? The answer is simple: if you know and understand your property, you then can protect its value. It can also save the hours of labour-intensive work that are involved in monitoring and evaluating a property’s condition, and processing all the damage reports.  

Don’t wait for your property to fall into disrepair or become obsolete. You should take action to monitor and maintain your real estate owned properties to ensure they don’t deteriorate and continue to remain a sound investment.