BANGKOK – Don’t expect to make money from real estate classified ads in Southeast Asia. That’s the consensus we witnessed at the Property Portal Watch conference in the Thailand capital. As a result, property marketplaces are seeking to generate revenue and become profitable by other means, including selling property to buyers directly.
“Property has been really difficult for everyone,” Tiwa York, the CEO of Thailand-based No. 1 horizontal Kaidee, said at the event. “In Thailand, if you look at IProperty, PropertyGuru – nobody is making money. We’ve had a similar problem.”
That sentiment, or a version of it, was repeated over and over throughout the two-day conference. “We went into the transaction because we were forced to,” Justin Sway, the founder and CEO of ShweProperty in Myanmar, said. “You just can’t make money in online advertising.”
“In the past we’ve focused on the classic classifieds portal, but there’s a lot of cash burn for a very long time with the online advertising model,” Matthew Care, the CEO at Digital Classifieds Group, added.
Limited incentives for agents
Generating revenue from online advertising is untenable because agents have no incentive to pay for listings out of their own pocket.
“The key difference with cars is that the dealer owns the asset and they’re losing money every time that car stays on their lot,” York said. “In real estate, the agents don’t have that problem. So, the agents have no willingness to pay.”
Even if agents were willing to pay for listings, the companies say that the process is so unstructured and distrusted that transactions fall through at a much higher rate than in a mature market. That’s made the property markets throughout many parts of Southeast Asia highly illiquid.
“In emerging markets, the structural set-up of buying and selling properties are very fragmented or unprofessional, so the portals come in and realize, ‘Well, if there’s a very weak ecosystem that doesn’t work, then I need to build that ecosystem,’” said Patrick Grove, the co-founder and CEO of Catcha Group, a company that invests in e- commerce and classifieds businesses in the emerging markets.
Zameen, the dominant Pakistan-based property site Catcha Group is invested in through its investment in Frontier Digital Ventures, learnt that lesson early. It’s been running a transactions business, selling properties on behalf of property developers, for a number of years. More recently, it launched a property development arm, in which the company project-manages and eventually sells new developments from scratch.
“There’s always a human looking to buy or rent or sell a property. You still have to look at what the consumer wants. At the moment, it’s a really weak experience for the buyer or the renter – they message 20 agents and only five will call them back. Young people are so used to getting things on demand, but why can’t they get property on demand?” he added.
York said Kaidee has found some success from private sellers, who are willing to pay to list their home on the site. “What we found was that when you own the asset spending $20, $50 or $100 to promote your listing – it’s nothing,” he said.
Diversification is key to survival
Kaidee wants to bring developers to the site, which York acknowledges might involve substantially changing how the business operates. Sway’s ShweProperty, for example, has built a CRM to help developers track inventory. It also operates a call center to handle buyer inquiries, runs expos and events, and employs real estate agents.
“There’s very limited revenue for listings, so we work with developers and, very simply, we close deals – we sell properties,” Sway said. “When people call the number on our website, they go through to our call center and then they might come into our office or we’ll drive them to a showroom.”
Sway said the company has no conflict with agents, because developers don’t use agents to sell their properties. “Developers don’t trust them,” he said.
However, Sway cautioned that while the business model generates more revenue than online advertising, it’s still tough to run. “Out of a hundred calls, we might close one deal. It’s a very high-volume business,” he said.
Keizo Tsutsui, the MD for Lifull Connect (the Japan-based business that runs international horizontal aggregators Mitula and Trovit), explained that the company has adopted a similar approach to selling property. “We have a call center, chatbots and use the messaging service Line. We also now have physical stores because people don’t necessarily trust people on the phone,” he said.
“Our staff meet with the consumer, listen to their property needs and then we introduce them to a developer. When the transaction is concluded, we get a part of the transaction fee.”
The company has also taken out contracts with cafes and co-working spaces. “When people want to meet at a specific time, we have space reserved at the back of a cafe,” Tsutsui said. “We also have a co-working space for people who don’t want to talk openly about their budget in a cafe.”
Will the agents be bypassed?
None of this came as much surprise to Malcolm Myers, the founder and CEO of European Internet Ventures, which helps marketplaces access capital and investors acquire marketplaces. He envisages that the current property business model will eventually evolve into trusted c-to-c marketplaces that bypass real estate agents altogether.
“The main pain points around real estate is that real estate agents charge too much, they can’t be trusted, and so on. The most disruptive models don’t rely on high-street real estate agents,” he said.
Grove agreed. “When I talk about transactions, I don’t mean that the portal is where the transaction occurs; I mean portals that help transactions happen. It’s very clear who companies like QuintoAndar [the Brazil- based proptech unicorn] are disrupting – it’s agents, not newspapers, not magazines. It’s very clear that’s what they’re going after,” he said.
That presents a set of challenges for property sites in markets where there’s a very well-established real estate industry. “There’s not a lot you can do. You can monetize your leads better, like moving into performance-based pricing,” Myers said. “If you can make some money around the transaction, do so. But don’t expect to make a lot of money.”
Myers expects that some of the most innovative businesses in the next few years will likely come out of an emerging market. “If you’re anywhere else in the world, there’s the opportunity to build your own sales teams to sell new and existing homes or move into a hybrid-agency model,” he added.
The rise of the hybrids
Variations of hybrid agencies can be found throughout Asia.
“We created Filipino Homes disguised as a portal, but really we’re a brokerage in the transaction, selling homes,” Anthony Leuterio, the founder and CEO of Philippines-based No. 1 property vertical Filipino Homes, told the AIM Group.
Leuterio said the company started out as Leuterio Realty, but it didn’t appeal to buyers. “So, we just copied other portals and created Filipino Homes.” The business hires and trains agents, who sign a contract to work exclusively for Filipino Homes. They’re responsible for getting their seller leads, but Filipino Homes provides the buyer leads. For each property the agent sells, Filipino Homes takes 20% of the commission.
Juwai, a property site that helps Chinese buyers purchase properties overseas, recently merged with IQI, a property developer operating in Asia and the Middle East. “What we offer is an end-to-end service, from advertising to selling property and managing rentals,” executive chairman Georg Chmiel said.
In rentals, Thailand-based Flat Monthly is the “Agoda or Booking.com of long-term accommodation,” according to director and co-founder Anthony McDonald. The site offers everything travel websites do, only it works with developers and large agency groups to lease their long-term rental properties. It takes a 4% commission from the developer or agency, a small fee from the tenant, and fees for arranging utilities.
In Egypt, local property vertical AqarMap holds property expos online. Buyers pay a fully refundable $100 fee to join the online expo using their credit card. If they find a property and sign a contract with the developer to buy it, AqarMap takes a commission. If the buyer doesn’t purchase a property, the $100 is refunded.
Initially, the company received pushback from agents but “we solved this by sharing the commission with the agents,” founder and CEO Amad Almsaodi said. “Everyone loved this – the brokers, developers, the consumers. We called it the triple-win model. We do it by calling the brokers ‘affiliates’ and we call the commission a ‘success fee.’ We give the brokers 75% of our commission.”
“When I look at the companies that are growing north of 50% year-on-year, they’re the ones that are getting transactions right. When you dig deep, 20% is coming from listings and lead revenue. The other 80% is coming from closing the transaction. I see it as the way of the future,” Grove said.