Battle of the real es­tate bro­ker­ages pits phys­i­cal vs vir­tual

China Daily (Canada) - - FRONT PAGE -

af­ter it said it would cut com­mis­sion fees to 1.5 per­cent of the trans­ac­tion value, a sharp con­trast to the 2.7 per­cent charged by ma­jor bro­ker­ages like HomeLink Real Es­tate Ser­vices.

In most cases, if one were to weigh the two de­vel­op­ments, it would not have been un­com­mon to ex­pect the in­dus­try to be in tat­ters. But vis­its to sev­eral bro­ker­age stores in Bei­jing re­vealed ex­actly the op­po­site story. Though most of the stores were largely empty, ex­cept for a bunch of bro­kers sit­ting be­hind desk­top com­put­ers, it was not due to slack busi­ness, but be­cause most of the trans­ac­tions had shifted on­line. Prospec­tive

cus­tomers of­ten di­rectly visit the houses on sale with bro­kers. Data re­leased byHomeLink and 5i5j Real Es­tate, the two largest bro­ker­ages in Bei­jing, showed record high pre­owned home sales in the past four months, thanks to stim­u­lus poli­cies since the end of Septem­ber.

A bro­ker with HomeLink who de­clined to be­named­said he did not feel his busi­ness has been af­fected with the ad­vent of the In­ter­net.

Li Zhimin, a se­nior bro­ker with a smaller com­pany, Maitian Real Es­tate Agency Co Ltd, said Maitian is not ex­pand­ing as fast as two or three years ago. It closed some stores in some com­mu­ni­ties but opened new­stores else­where.

“Un­der the cur­rent cir­cum­stance, big com­pa­nies be­come even big­ger while small com­pa­nies find it hard to sur­vive. There is rarely a mid­dle ground. We would not cut our com­mis­sion fees, even if it means fewer cus­tomers. We think in the long run pro­fes­sional ser­vices are still what most cus­tomers care for,” he said.

That isa­s­tan­dar­d­an­swer­pro­vided by many other firms China Daily in­ter­viewed. Small agen­cies in Bei­jing of­fer big dis­counts, but most home­seek­ers still­choose­ma­jor­a­gen­cies like HomeLink, which takes up al­most half the pre-owned home sale mar­ket. The pri­vately held com­pany did­not­dis­close its earn­ings, bu­tubiq­ui­tous stores, bloated bro­ker teams an­dun­sub­dued­com­mis­sion­feessug­gest it is not on the verge of col­lapse.

Quite the op­po­site, based on its strong off­line pres­ence and abun­dant home sources, the com­pany was able to fight a war with SouFun Hold­ings Ltd, owner of China’s largest real es­tate In­ter­net por­tal.

In Oc­to­ber 2014, HomeLink de­cided to stop its co­op­er­a­tion with SouFun and scrapped all its list­ings on the web­site, cit­ing ris­ing feescharged by the lat­ter. The de­ci­sion, along with other bro­ker­ages’ boy­cott, dealt a heavy blow to the web­site, which re­lied heav­ily on the list­ing fees paid by bro­ker­ages. The NYSE-listed com­pany’s share prices tum­bled to $7.26 as of Tues­day, from a peak of $19.4. HomeLink switched to up­grade its own hous­ing in­for­ma­tion web­site.

SouFun re­sponded to the cri­sis by an­nounc­ing its in­ten­tion to ex­pand from a pure-me­dia plat­form to a “three-in-one” in­for­ma­tion, trans­ac­tion and fi­nan­cial plat­form. But whether that would bring in new sources of rev­enue still re­mains un­clear.

“De­spite be­ing a sig­nif­i­cant rev­enue op­por­tu­nity, we viewthe visibility of such a tran­si­tion as very low at the cur­rent stage. More­over, un­like In­ter­na­tional Ltd’s in­vest­ment and tran­si­tion, SouFun’s new ini­tia­tives could po­ten­tially cre­ate con­flict be­tween it­self and cur­rent busi­ness part­ners and lead to a neg­a­tive im­pact in the near fu­ture. We sug­gest in­vestors stay on the side­lines un­til fur­ther visibility arises,” wrote JPMor­gan Chase & Co’s an­a­lysts in aNovem­ber note.

In the eyes of a new wave of cru­saders in the in­dus­try, both brickand­bro­ker­ages rep­re­sented byHomeLink, and e-com­merce sites rep­re­sented by SouFun are “old forces” whose tra­di­tional busi­ness­model equates to re­dun­dant, if not to­tally use­less, pres­ences.

They see tra­di­tional bro­ker­ages open­ing too many stores, hir­ing too many staff, and charg­ing too much fees. If the whole busi­ness model could be rein­vented to skip stores and cut staff, com­mis­sion fees could be brought down while busi­ness re­mains prof­itable.

That is what, a new ven­ture cre­ated by some In­ter­net vet­er­ans last March, is do­ing. Fo­cused on the home lease busi­ness, the com­pany cut the pre­vi­ous com­mis­sion (a month’s rent) to half, and poached bro­kers from bro­ker­ages by promis­ing to at least­dou­bletheir base salary.

The strat­egy worked. In Shang­hai, the com­pany promised zero fee for rent seek­ers, and iwjw quickly rose from ir­rel­e­vance to be­ing the fa­vorite of cus­tomers.

Deng Wei, founder of the com­pany, said iwjw took the of­fen­sive by punch­ing the “aching points” of the tra­di­tional in­dus­try, in­clud­ing un­nec­es­sary stores, poor ser­vice, fake home in­for­ma­tion on their web­sites and high charges. She said most bro­kers stayed idle all day long, which is a huge waste. And bro­kers take an in­dif­fer­ent at­ti­tude to­ward those want­ing to rent houses, be­cause sell­ing a prop­erty is much more lu­cra­tive than a leas­ing deal.

An­a­lysts agree with the crit­i­cism, but said de­spite its flaws, the role of tra­di­tional mid­dle­men re­main ir­re­place­able. Un­like triv­ial spend­ing on­line, house pur­chases in­volve huge amounts and are the most ex­pen­sive life­time spend­ing for most Chi­nese peo­ple.

Agents play a crit­i­cal role from house tours, price ne­go­ti­a­tions and con­tract sign­ing — no mat­ter how much­buy­er­sand­sellers re­sent­them.

“In most cases prices would not be set­tled with­out agents. In a hu­man cap­i­tal-in­ten­sive in­dus­try, peo­ple, and the tal­ent and ex­per­tise as­so­ci­ated with them, play a key role,” said Frank Chen, ex­ec­u­tive direc­tor and head of CBRE Re­search China.

“The value of In­ter­net com­pa­nies are that they shake up the sta­tus quo. But even af­ter the dis­rup­tion ef­fect was made, most of the chal­lengers ended up not mak­ing money — much like e-com­merce in China.”

Iwjw also faced some prob­lems re­cently like in­ac­cu­rate in­for­ma­tion, lag­gard ser­vice, money splurge etc.

SouFun is strug­gling to jump­start its new busi­nesses, while HomeLink is try­ing hard to pre­serve its bro­ker pool, which is get­ting eroded by ri­vals. There seems to be no end in sight for the tan­gled­war­fare, an­dit is quite likely that none will end up as the win­ner. Con­tact the writer at zhengyang­peng@chi­ Han Xiaomeng con­trib­uted to this story.

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