South Africa’s real estate industry held to ransom by property portals?
The South African real estate industry had a recent shocker when it was announced that the #1 property portal in the country, Property24, bought its competitor Private Property (the deal still has to be approved). This has put the industry on the offensive, with a real fear that agents will be held to ransom to a portal monopoly, where subscription fees can be increased as desired.
We did a little online survey, and the results were not surprising, with 75% of estate agents seeing it as negative for the industry.
This is not unique to South Africa; we’re seeing it in other parts of the world, perhaps the most recent, the new UK industry-owned portal www.onthemarket.com/. From what I can see it still has a long way to go to catch up with RightMove and Zoopla in terms of leads and visitors. In New Zealand you have realestate.co.nz competing with the #1 portal Trademe.
Interestingly, only 61% of South African estate agents surveyed believe that portals charge too much. But the real concern is that a result from this deal would give a Property24 monopoly full control to push up prices as it wishes. Some 29% believe that prices are fair, and 9% that they get excellent value for money. Can Pareto’s 80/20 principle be applied here? The majority of agents want their own portal as they believe they are overpaying, while a minority get excellent value for money and don’t mind paying. I would love to know if SA’s top estate agents are in the 20% or 80% slice.
Historically, estate agents have countered threats to their industry by taking shares in newspapers and portals, or starting their own, with mixed results. And if you take a share in an existing portal, be sure it is not a minority stake, as we saw with Private Property.
With property portals, considerable funds, a very focused team, buy-in from the whole industry, and a long-term view is required to be successful in a very competitive space. It is not a quick exercise. Successful property portals aren’t built in a day and take years of dedicated effort. It seems easy to replicate, but running Entegral and our own property portals for 10 years, I speak from experience when I say it requires considerable effort. It is a competitive space where big portals seem to have limitless funds available through investors.
What you will need to look at
Establish a very strong brand that communicates with both agents and consumers. This includes strong online marketing, search engine optimisation and an effective social media strategy.
From a systems back-end perspective look at how listings will be imported into your portal, quality on listings is controlled and how support to all agents is handled.
From a front-end perspective, you would need to be laser-focused on creating the best possible user experience, and be prepared to constantly tweak the small things to create more leads.
Invest a large portion of your funds to innovation. This means trying out new things that will in most cases not provide a visible ROI (if you are really aggressive in what you do).
Have a really awesome team that knows each other’s strengths and weaknesses.
Another threat: low-commission and online agents
As if the threat from portals isn’t enough, traditional estate agency models now have to compete against the increasing number of low- and fixed-commission and online agencies. In South Africa we have the likes of Leadhome, PropertyFox and Steeple that resembles overseas models like PurpleBricks and eMoov. They do of course face a very difficult journey, and most agents will shrug it off and say that these models can never compete long term.
But we all know that it only takes one company to disrupt an industry and prove that the model works. Once it is done, it looks easy, and everyone will want to replicate it.
Estate agents also have the FSBO (For Sale By Owner) model to compete with, though it is a very small portion of the SA market. Interestingly enough, Private Property was once the enemy of most agents with its exclusive FSBO model, before it opened it up to estate agents.
A defensive position
A year ago, REBOSA set up the EAPC (Estate Agents Portal Company) with the following mandate:
…the board was mandated to look at securing the industry’s future in respect of the world of property portals and, in the process, to ensure that the disadvantage the industry found itself in, for example the US and UK, was not repeated here…
This has eventually led to a 13% stake in Private Property at the time. And as is highlighted here, a more defensive solution was created:
…We continue to have board representation and influence, the relationship is healthy and while we are nowhere near where we would want to be in terms of control, we have at the very least put in place a real defensive position to ensure that we are not at the mercy of non-industry affiliated masters in respect of portal advertising costs and processes which was the first step in regaining lost ground…
With such a small ownership in a portal, is it ever going to work? And at what cost?
The bigger problem I see is that you have a minority share in a business with an investor like Tiger Global Management which would someday wants a return on investment. And as we saw in the last two weeks, everything has a price. It can catch everyone off guard, including the minority shareholders.
The approach taken by the EAPC doesn’t have the buy-in from all estate agents in South Africa, with some arguing that it doesn’t benefit the smaller estate agency. So the challenge would be to create an industry vehicle where every registered estate agent, either franchise or independent, is comfortable in supporting long term. Equal shares to all estate agents.
A defensive position taken by the real estate industry doesn’t necessarily result in good news for the man in the street. Consider the following statement made in the latest Property Professional magazine by a franchise CEO.
…If a portal prices itself out of the market, we might just slow down the feed to that particular portal until we get the prices right…
This will have a negative impact on the user experience of regular users on that portal. Users get to trust a brand and portal over time. What happens when they can’t find properties on their preferred portal? If they don’t know that brand new listings would now be elsewhere, it could have a negative impact for both the seller and the buyer. You are now also forcing them into using a different portal, that may not have all the cool features and user experience they love.
…Agents have the power to slow that flow down for those that don’t cooperate…
Very true, agents do have the power to take control by playing ‘traffic officer’ of listing data. Question is, are you acting in your own best interests, or that of the consumer?
For agents, work on improving your own real estate business. Find new ways of generating leads, especially referral leads, so that all your eggs are not in one basket (portal). I believe there is huge value for hyper-local marketing and establishing yourself as the go-to agent in your local neighbourhood. You don’t have to be part of the biggest franchise, or have all the top banners on all the portals.
Invest in your own website and unique quality content that focuses on your local community. This is an investment, regular, quality content (that people value and would like to share) will improve your website search engine ranking. Try something new; not every marketing stunt will work, but at least you gave it a try. Through trial and error comes perfection!
Qualify your leads and re-invest in the tools that bring in those leads. Qualify buyers and learn how to say no to the time wasters. And my favorite tip?
Respond as quickly as possible to online leads.
Most buyers will inquire on more than one listing, those who follow up first have an immediate advantage.
With the right team and funding, you would be able to establish a #2 or #3 competitor. As a late entry into the market that has to play catch up, it would be extremely difficult to unsettle the #1 portal. Take a majority stake in an existing portal, and you can shorten this gap. Should a defensive approach be followed, where listings are delayed or regulated to portals, it could close the gap even further (although as I’ve mentioned, at the expensive of the consumer).
A long-term view would be required, buy-in from all estate agents, a good marketing fund, patience and a lot of hard work. An industry-owned portal can provide agents with the reassurance that they own part of their future and are not completely held ransom by portals. The alternative is to go with the flow, and hope that a portal monopoly won’t result in the steep increase in subscription fees. It is a gamble.
But is an industry-owned portal the way to go? Or are you fighting change? Think Uber, Airbnb, Tesla and other companies who disrupt entire industries. It could just be a temporary solution.
Food for thought, the future of estate agents
Seeff doesn’t see the industry changing in the next three to five years but sees a changing role of the estate agent. I agree: The role of the estate agent is changing, perhaps faster than you realise. They are more technology-oriented, more project manager and transaction coordinator. Gone are the days of being the only source of property information to sellers and buyers. They do their own research before they speak to you.
The best estate agents are great negotiators, are very diligent in following up, are quick to respond to new leads, are great communicators, don’t overprice homes just to get a mandate and have the tools and experience to work with serious buyers only.