- AoCubo is trying to corner the new-builds niche in Brazil
- New developments have been surging in number
- Emerging markets offer strongest opportunities for verticals focused on new builds
A real estate startup in Brazil is looking to dominate in the new-build segment by providing generous commissions to agents and a more pleasant journey to consumers. It’s part of a wider trend, with the new-developments marketplace niche growing in emerging markets, where new-housing volumes are rising due to population growth and state-backed housing programs.
AoCubo (formerly LoopImoveis) has a large addressable market in the LatAm country, where surging demand for new housing units is propelling the primary property market. It sees itself as a technology provider first, and a lead-generator second.
The company delivers qualified leads for agents. It generates, screens and “matches” leads for a network of 12,000 independent agents. AoCubo intermediates real estate transactions and gets part of the commission. However, it pays agents an above-the-market commission, as agents in Brazil often split their commissions with managers and directors.
A niche without significant competition in Brazil
“I was looking for an apartment in Brazil and the experience wasn’t great. I was getting harassed by agents, different developers — there was no one person looking out for my needs. So, we thought, why don’t we create a platform to generate leads, qualify leads, and we give them to agents that we train, we know are professional, then we take a cut on the commission at the end,” Ronnie Sang, AoCubo CEO and co-founder, told the AIM Group.
Brazil-born Sang spent much of his childhood in the USA. Before launching the real estate project, he worked in the automotive industry, which he thought delivered limited growth opportunities compared to real estate.
Sang describes his business as a digital real estate brokerage, working with independent agents and focused fully on new builds.
“All the other big real estate companies in Brazil are focused on secondary units or IBuying. Brazil has over 200 million people and a huge housing deficit, so housing units will continue to grow. We found a niche with pretty much no competitors, just brick-and-mortar agencies with minimal tech knowledge,” he told us.
Indeed, Grupo Zap, the leading real estate business in country owned by local horizontal OLX-Brazil, is primarily focused on the secondary market and c-to-c transactions. This is also the case for Navent-owned ImovelWeb and the real estate offering provided by MercadoLivre. Well-funded Loft is an IBuyer business while QuintoAndar is a pure rentals vertical.
“The new-build market is more liquid. People get attached to houses in the secondary market. Whereas the developers want to sell and move on, as fast as possible. There is usually a good price structure —pricing is competitive,” Sang said.
What really put AoCubo on the radar for us at the AIM Group is the impressive team behind the project: investors include Shaun Di Gregorio, CEO and founder of international marketplace operator Frontier Digital Ventures (FDV); and serial real estate investor and chairman of Australia-based PropTech Group Simon Baker.
The company had a seed fund raise in March, with both investors participating.
The commission model
AoCubo gets a brokerage commission on every sale, in addition to the agent commission. It does not sell leads. However, the company has several different sales channels:
- Agent leads. Agents can bring their own leads for a larger share of the commission.
- IBroker. By generating in-house leads and qualifying them through proprietary technology via a service called IBroker, AoCubo takes a larger share of the commission.
- On-site sales. Agreements for commission sharing via sales teams representing developers, often located on the site of the development.
Training agents is a key component of the business. To do this, the company created AoCubo University, a free program for agents.
“We created an MLS for new developments in Sao Paulo. Agents can just sign up, take the information and sell through us. Agents who want to get qualified leads have to go through the university program. There is an interview process and a big waiting list,” Sang told us.
AoCubo judges agents based on their conversion rates, so they meet the company standard. The company also talks to users to understand their experience.
AoCubo currently has around 70,000 units listed for sale. By comparison, OLX-Brazil only lists 139 new builds out of a total of 6 million real estate listings. Grupo Zap’s ZapImoveis lists 3,200 new builds, while VivaReal lists 3,300.
Around 90% of AoCubo’s supply is focused on the Sao Paulo metropolitan area, the primary real estate market in Brazil. The company has so far closed more than a thousand transactions, and hopes to double this number in 2021.
The size of the opportunity
Brazil saw around 360,000 transactions in new builds in 2020. In H1 2021, more than 60,000 new-build projects were released to the market — a rise of 115% on the same period of last year. The market has been heating up due to record-low interest rates on home loans. The pandemic impact has also encouraged more people to search out additional real estate, typically in suburban areas, while investors are moving more money into real estate as stock markets become more volatile.
“We see huge growth, really catching up with more mature markets. The whole market is going to see a lot of growth in the coming years. It has been depressed, but the historically low interest rates are helping,” Andries Oudshoorn, the CEO of OLX-Brazil, told the AIM Group.
There were 13 IPOs by Brazil-based property developers in 2020, underlining the high levels of activity in the segment. Rapid digitization, partly a pandemic consequence, is funneling more buyers toward online mechanisms for purchase — typically more streamlined for new builds than in the legally-riskier secondary market.
In emerging markets, many marketplaces focus on new builds. Demand for new housing is much more pronounced in emerging countries, resulting in large volumes of new builds coming on to the market. Consumers are enticed by new developments due to the easier legal processes for acquisition and the opportunity to receive a discount by buying at an earlier stage of development — a practice that is illegal in many developed markets. Consequently, emerging markets also suffer from unfinished developments and fraudulent sales on empty lots.
The new-build marketplace model differs significantly from general real estate classifieds. There are no private listings and developers generally don’t pay per listing, instead agreeing a marketing deal with the marketplace directly, or just purely allowing the marketplace to receive a commission on the sales. Construction plans, 3D models and legal guarantees also become more important with new builds, since most projects become available for purchase before construction is complete.
General real estate marketplaces, particularly in emerging markets, do focus significantly on new builds, but it’s a difficult niche to dominate alongside a secondary property offering — the selling model differs and the navigational aspects of the UI can be difficult to integrate alongside private listings. A dedicated new-build vertical has significant advantages in this sense. General property marketplaces with a major new-build component include Frontier Digital Ventures-backed Zameen.com in Pakistan and Prosus-owned Domofond.ru in Russia.
International examples of property marketplaces that focus purely on new developments include:
- Arazistan.com in Pakistan.
- Diyar22.com in Iran.
- YeniEmlak.com in Turkey.
- CommonFloor.com in India, a vertical operated by horizontal Quikr.
The primary threat to AoCubo’s business model is if another tech-powered broker makes a big push into the new-build market. This is most likely to come from QuintoAndar, which has a large warchest and a sophisticated technology for the rental market.
OLX-Brazil / Grupo Zap is more focused on building up its rental capabilities and transactional services.
“Our first priority is to offer a very complete offering to real estate agents and property developers. We have a lot of technology solutions. We have branded this offering Zap-Plus — the idea is that it will serve all the needs of real estate agents in a bundle. We have quite a complementary client base, we can offer this to everybody,” Oudshoorn told us. “The second priority is to digitalize the whole journey of buying, selling and renting real estate. We want to offer a transactional service. For example, in renting, scheduling, making appointments, signing contracts online and arranging maintenance.”
The opportunity for AoCubo is therefore interesting — it can potentially become the go-to site for new builds in Brazil, if it’s able to grow quickly enough before one of the major real estate marketplaces places a strategic focus on this segment. It will need to grow audiences and lift its presently nascent traffic levels to higher rates. Further fund raises will thus be required for marketing costs.
What is Sang’s priority for the year ahead?
“Market share. We have to gain market share. More brand awareness of what AoCubo does, what the benefits are. This will help increase transactions,” he said.