- Marketplaces throughout Asia have launched real estate brokerage businesses
- Tech-enabling agents may offer a faster route to market leadership
- With listings revenue limited, is this the best way forward for marketplaces?
Asian property sites have long looked for alternative ways to drive revenue, with fees from listings weak by comparison to more mature markets in Europe and North America. Many are now turning to brokerage businesses to market and sell developments.
Companies such as Zameen in Pakistan, Lamudi in Indonesia, Juwai IQI in China, ShweProperty in Myanmar and its rival IMyanmar House are among the verticals in the region to successfully transition away from a pure property listing business to hybrid brokerage-portals.
Not enough money in ads
“You can’t make money on advertising. That’s the lesson we’ve learned in the first two years,” Justin Sway, the CEO and founder of ShweProperty, told the AIM Group. “We decided the only way we were going to make money is in transactions.”
But the business model also provides greater opportunity to generate additional revenue, first through the standard fare of mortgages, and then from value-chain services such as property management, research and consulting, and secondary dwelling sales.
“We sell new property — that’s our core business,” Georg Chmiel, the executive chairman of Juwai IQI, which sells foreign property to Asian buyers, told the AIM Group.
But he said the company also gets a second and third bite of the cherry through rentals and secondary sales, usually at the behest of the property developers.
“It gets factored in that when somebody buys, the developer says we have property management organized … and then Juwai IQI is doing the rental. Once you have that rental, you’re in touch [with the landlord], and then when the person who owns it wants to sell again, suddenly we have the secondary sale.”
Real estate agents throughout the region are fragmented and few are willing to spend much on property advertising, something that’s compounded by the lack of exclusive listings. Project marketers, working to sell primary developments, are more willing to pay for advertising, but their razor-sharp focus on ROI puts the onus on property verticals to pre-qualify leads before passing them on to the agent.
“Because the agent was paying us, we always had to justify our existence. What we had to do was take the lead, qualify it internally, then hand it over. By doing this process, hours were lost,” Chmiel said. “When you want to buy, you don’t care about Juwai qualifying the lead; you find that a nuisance, you just want it acted upon immediately.”
Besides the possibility that leads will get lost in the handover from the site to the agent, many developers, according to Sway, don’t want to work with local brokers and agents. “The agents are not sophisticated and don’t have the technology tools,” he said. “But technology is really important to us.”
Building complete real estate ecosystems
To get into the brokerage business, the companies built digital platforms — essentially an end-to-end real estate ecosystem — to manage the sale process online as much as possible. In particular, they let the companies control what projects third-party agents work on and prevents the leakage of leads (agents passing leads to friends or relatives, in exchange for a cut of the commission). Each lead is tracked closely, right down to how long the agent has been assigned it for. Communications with buyers and sellers go through the companies’ platforms to further prevent lead leakage.
Crucially, the companies also hired their own real estate agents. Even in markets where agents don’t have to be licensed, the companies said that having staff with real estate experience is fundamental to the model’s success. “Selling online advertising is completely different to selling property. You need to really understand the buyer, their circumstances; you don’t do that when you’re selling an online ad,” said Chmiel, who himself was once the CEO of a leading Australian real estate agency group.
ShweProperty has assembled a team of more than 150 agents, some with past real estate experience, others the company trained from scratch. After that, the brokerage business experienced significant growth. “The first year, we did about 100 [transactions] and the second year we did five times as many,” Sway said. The brokerage business now represents 90% of ShweProperty’s overall revenue, he added.
Juwai, meanwhile, has 15,000 agents working on exclusive contracts throughout China, Malaysia and Singapore; it’s also partnered with brokerages in India and Pakistan, and is running an affiliates program with agents in Australia and New Zealand.
In 2019, Juwai merged with project marketing company IQI Global. Since then, it’s transacted $1.2 billion U.S. in property, and expects to transact close to $2 billion in calendar year 2020. Annual revenue in 2019 was $40 million, but the company said it’s chasing a $115 billion market opportunity across Asia.
A brokerage is disrupting in China
Perhaps the most successful example of a hybrid brokerage vertical is Ke Holdings in China, backed by Tencent and Softbank.
Also known as Beike, Ke operates Lianjia, a real estate brokerage that’s been operating in China since 2001. In 2018, it launched Ke.com, an online property vertical to capture traffic and property listings for new developments and secondary dwellings from other agents. Today, it’s the No. 3 property vertical in China by visits, behind market leaders Fang and the 58.com-owned Anjuke.
China is the world’s largest real estate market, yet it struggles with all the inefficiencies of other emerging markets — a lack of property data, fragmented agents, no exclusive listings. With Ke.com, Lianjia sought to solve this by launching the agent cooperation network (ACN), essentially Ke’s answer to the multiple listing service (MLS) used in the U.S.
The ACN solves a number of problems in the Chinese real estate market. First, it consolidates and authenticates all of China’s property listings on one platform; second, it builds trust with consumers. In the U.S., only licensed brokers and agents can access the MLS, for which they pay a subscription fee. In China, Ke made access to its ACN free, but instead imposed a set of standards to which agents must adhere. For example, it rates agents based on their performance. Agents with high ratings enjoy additional privileges, such as access to more leads. Agents that violate the ACN’s rules may have their access to the platform restricted, or be banned altogether.
Since launching the ACN in 2018, Ke has brought more than 456,000 agents and 42,000 agency branches onto its platform. The company said it has 226 million properties listed on its “housing dictionary” or property database, from which it’s accumulated an unprecedented volume of property data that underpins a number of its agent SaaS products, plus its automated valuation model. Many of those listings are also pushed to its consumer-facing Ke.com site.
Participating ACN agents also benefit from Ke’s digitized transaction services, such as online sales contracts, mortgage services, escrow, and title transfers. From its platform, Ke also provides several tiers of agent training to ensure a professional experience for buyers and sellers. All agents accepted to the ACN must have a minimum undergraduate degree as a starting point.
The subsequent network effects have propelled the company to a Top-3 position in China by creating the systems to automate house transactions and a network of agents using them. In effect, it’s in the business of tech-enabling the country’s fragmented agents.
As a combined brokerage and classified site, it’s the market leader in China, with a 20% share of the market. In fiscal 2019, it facilitated 2.2 million property transactions, worth $301 billion; revenue was $6.5 billion.
In August this year, the company completed a $2 billion IPO on the New York Stock Exchange, giving it a valuation of $23.3 billion.
In India, a battle for market share
Ke’s success has provided a good blueprint for companies elsewhere to follow.
In India, Square Yards launched as a tech- enabled brokerage in 2013, with a focus on selling developer properties.
“Once we started building that, we realized that if we want to seamlessly move into secondary [properties] and rentals, we have to be the actual portal,” Tanuj Shori, the CEO and co-founder of Square Yards, told the AIM Group.
India’s real estate market is even more fragmented than China’s. The largest property developer has a 1% share of the market and there are about 1 million real estate brokers, around 95% of which are two-people operations, Shori said. Only recently has the Indian government introduced regulations requiring brokers to be licensed to sell primary dwellings; the secondary market remains a free-for-all.
“The security guard in an apartment complex calls himself an agent because he does that on the side,” said Mani Rangarajan, the group COO of Elara Group, which operates rival real estate brokerage PropTiger and the property verticals Housing.com and Makaan.
Square Yards has no plans to monetize its property vertical, but it will use tech to help match buyers with agents and brokers. It can afford to do this, Shori said, because its brokerage business “makes a lot of money that can subsidize the investments we are doing in the portal business.”
Since launching, Square Yards has sold around 45,000 primary dwellings. In 2019, it was doing around 1,000 sales per month, giving it a 3% to 4% share of the market. (Some sources put its market share at around 2%.) If it becomes the market leading property vertical by traffic, the company thinks it will easily be able to control around 20% of property transactions in India, perhaps 40% longer term.
But Square Yards has formidable competition from Elara Group, a company first backed by News Corp., Softbank and Australia-based REA Group. Elara launched PropTiger, a real estate brokerage, in 2011. It acquired the property vertical Makaan in 2015 and then the No. 3 (or sometimes No. 2) vertical Housing.com in 2017. That same year, REA Group took a 13.5% stake in Elara for $50 million. This past October, REA Group announced it would increase its shareholding to a controlling 47.2% to 61.1% stake in Elara, in a deal worth $70 million.
PropTiger runs a fairly sophisticated, technology-driven brokerage for a business that Rangarajan told us is still 95% offline. “We have touch screens up to 72 inches, we have tablets … [and] videos, drone shoots — we have our own drones — 3D walkthroughs. We have the complete infrastructure and products for developers,” he said. “We take care of everything from doing the content products, generating the demand, monitoring offline spends, to actually doing the transaction.”
In fiscal 2020, Elara generated $19 million in revenue, a modest 8% increase on the previous year. Although revenue is expected to be impacted by Covid-19 in FY21, the company has generated a 47% CAGR since 2017, which REA Group expects will accelerate post-Covid.
Research and consulting for developers
Elara has a research and consulting arm it calls Data Labs, which uses data and insights from Housing.com and Makaan to provide developers with demand dynamics in certain localities, commercial and real estate trends, and buyer demographics. “We work with developers right from the stage when the developer says, ‘We have land, what should we build?’” Rangarajan said.
Other companies do likewise. “The data is so important for finding the right target audience, finding the right property to build, and where to build,” Chmiel, of Juwai, said.
In Pakistan, Zameen, the market-leading property vertical run by Emerging Markets Property Group (EMPG), has gone a step further. It not only uses its data and insights to advise developers on what to build, it even underwrites the capital construction costs on developments. The company then has the exclusive rights to market and sell the properties — and gets to share in the financial spoils as a result.
In fiscal 2019, Zameen, which is 70% owned by Dubai-based EMPG, and 30% owned by Frontier Digital Ventures, a marketplace investment fund based in
Malaysia, generated $29.5 million in revenue, a whopping 89% increase on the previous year. It also became EBITDA positive in FY19 for the first time.
IMyanmarHouse, another Frontier-backed company, grew revenue 39% in FY2019 to $1.3 million. A rival to ShweProperty, IMyanmar also runs a brokerage business, from which it generates the majority of its revenue. In FY19, the company also became EBITDA positive. In February, Frontier increased its shareholding to a controlling 52.6%.
Each of the companies offer what PropTiger calls a “full-stack” service, in which they advise developers on what types of properties and localities have the greatest buyer demand, provide a full marketing plan, and have their agents sell the inventory. “It’s an end-to-end play. All the developers have to focus on is construction and development,” Rangarajan said.
But Rangarajan said that while the full-stack service is very profitable for Elara, it presents an ethical quandary. “The whole limitation of the full-stack is that you can potentially only do one project per micro market,” he said. “Once you sign an exclusive deal with the developer, then it becomes difficult to sell competitive properties in that particular micro market.”
Most of the companies get around any potential conflicts of interest by being selective about the developers and projects they work on. “The key is not to represent all properties because some developments are bad quality or in bad locations, so it’s really thinking about what’s good for the end consumer,” Chmiel said.
At ShweProperty, Sway said the company isn’t focused on running a high-volume transaction business but running a highly efficient one. “It’s not about the number of transactions … It’s how you do the transactions. You can do a thousand and not be profitable. You have the get the right projects, the right inventory that you can sell at the right commission,” he said.
Hybrid brokerages in mature markets
Classified / brokerage models are not only active in emerging markets. There are examples of companies making inroads in more developed countries, too.
Square Yards, for example, has launched in other markets, including the UAE, Australia and Canada, focusing only on new developments. In Australia and Canada, Shori said, it’s almost an untapped market, as none of established the property verticals have made any meaningful strides into the developer segment. Or when they have, as in Australia, they’ve replicated what they’re doing in the secondary market, by taking listings and advertising from project marketers, rather than working with developers directly.
In Australia, the total addressable market for primary developments is much smaller than the secondary market, representing around 10% to 20% of overall property sales. But Shori said the revenue opportunity from doing the transaction is particularly lucrative.
“Sydney and Melbourne do around 3,000 transactions a month in primary. Compared to overall Australian sales that is very low, but compared to Indian volumes that is high,” Shori said. Plus, the transaction sizes are much higher — its Australian arm now accounts for 10% of Square Yards’ overall business, he added.
In the U.S. this past September, Zillow brought some brokerage services in-house. In three of its IBuying markets — Atlanta, Phoenix and Tucson — Zillow will now use in-house agents to represent it on the buy and sell side of Zillow Offers transactions.
Previously, the company had outsourced this to one of its agents operating in those markets, but it added additional costs to the already razor-thin margins of IBuying.
It also means Zillow will be able to more directly influence other areas of the transaction that are more challenging to attach to property sales — such as mortgages and even title and closing services.
How Zillow’s brokerage business fares in the next 18 to 24 months is being watched closely by industry observers, who think its success has the potential to change the long-held view that property verticals in well-established markets cannot run brokerage businesses alongside their listing business. Might other portals be able to manage the transition without decimating their core business?
Shori cautions that a brokerage business is not as seamless to operate as a property vertical. “The problem for any portal to move into a transaction business has always been the shift in DNA — the two businesses always need to run very differently,” he said. “A transaction business is a very complicated, daily fire-fighting business.”
And yet, with larger and more lucrative opportunities to generate revenue and influence other profit centers of the real estate transaction, the companies say it’s the future of real estate marketplaces.
At the moment, most hybrid brokerages are largely focused on new developments, which is generally a smaller part of the business. However, they are likely looking to expand and encompass the resale market, too, though that would place them in direct competition with agents and brokers.
The real opportunity may be in creating businesses that tech-enable agents and digitize the real estate value chain, as Ke.com has done in China, which can cut out traditional classified sites from the equation altogether.