Will plans to ensure a 50% BEE estate agent contingent by 2015 irreparably damage the property industry in South Africa?

Pertinent Questions Raised

The press release issued by Lew Geffen in November of 2013 raised some weighty issues regarding the Property Sector Charter Council’s plans for all realty companies. By 2015 they want at least 50% of all estate agents to be BEE. The question that is most pertinent is how exactly will this be achieved in light of the current qualification process for estate agents, and what effect will this have on the current estate agent market?

Practical Issues a Concern

With little question that transformation needs to take place, the larger issue becomes the practicalities of this plan by the Property Sector Charter Council. Lew Geffen says, “A 50% quota can’t be enforced by 2015 because the economy simply won’t allow for that number of estate agents to flood the market.” Geffen goes on to explain that with the number of estate agents already sitting at 38 000 after a dramatic decrease from 2008’s figures of 75 000, the implementation of this plan would in effect see half of the current experienced estate agent workforce retrenched for novice agents with little to no training; a situation that will all but ensure that the BEE estate agents will fail, and cause damage to the property industry.

Low Stock Levels Worrying

There is also the matter of the current stock levels in the South African market, with actual transactions conducted on a monthly basis nearly half of what they were in 2008, from 40 000 to 20 000; the stock that is available to be sold simply doesn’t support an increased estate agent contingent and certainly not estate agents that will be going up against agents with far more experience and training.

Industry not Ideal for Matriculants

Geffen says, “In an ideal world thousands of agents would not have had to quit the industry in the past few years and markets would have grown. Instead we’ve lost ground; how can we, in good conscience, say to people ‘come and learn the industry but chances are a year down the line you won’t be able to earn a living’?”
The actual quota notwithstanding, there is also the critical question of skills and training. Linda Erasmus, CEO of Fine & Country, says, “It is not a good industry for school leavers, because while estate agents aren’t lawyers, they still deal extensively with contract law. Realty is unlike any other industry, because you’d usually be given a product and you’d sell it. Realtors not only have to sell a product, but go out and find it first. There’s no basic salary; if you don’t sell, you don’t earn. It’s not an easy job.”

Extensive Skills Required

The skills and expertise required to sell a property go above and beyond convincing a person to part with money for a product. You need to understand the laws regarding property ownership, the transferring of property, what certificates are needed and the actual contractual side of the transaction. In South Africa, in order to qualify as an estate agent, “A new entrant to the industry is required to achieve the qualification FETC: Real Estate (NQF level 4), to complete a 12-month internship under the mentorship of an experienced estate agent and to write and pass a professional designate exam (PDE) at the end of the internship. This aligns the professional education and training requirements of the real estate profession with those of the legal and accounting professions,” according to Kevin Mullins, CEO of SA Real Estate Agency.

Current BEE Status Bodes Negatively

Measuring this process to gain the necessary qualifications against the 50% BEE quota, Jan le Roux, CEO of Leapfrog Property, says, “This target is not achievable given the number of black agents that would have to recruited and trained in the space of two years. Presently there are approximately 6 000 black estate agents out of a total of about 42 000 registered agents, which means that an additional 15 000 black agents need to enter the industry (based on present numbers). In fact, there will have to be even more black recruits as the additional 15 000 will bring the total number of agents to about 57 000, and 50% would be 28 500, that is, at least 22 000 black agents must enter the industry over the next two years. Without significant government investment in the costs of training, as well as provision of a stipend for at least six months to the new recruits (agents only earn when they sell, which takes at least four to six months for rookie agents), there is no way that the current industry players can meet the target.”

Unrealistic Deadline

While no one is arguing against transformation in every sector including the property sector, it is the rushed timeline and unrealistic demands that are meeting with strong criticism. Geffen says, “Right now there is just too much economic uncertainty in South Africa and too small a real estate market to enforce the 50% quota the Property Sector Charter Council wants. We are also hearing from several quarters that if companies don’t comply they won’t be issued with Fidelity Fund Certificates, which effectively means that they will have to close their doors.” One must question who is behind the current quota and the deadline for its implementation? How much research has gone into planning the timeline and the actual transformation of the property sector? Despite this quota being endorsed by the major regulatory bodies of the South African Property sector, there seems to have been little to no discussion between the estate agencies on the ground and the people putting the legislation in place.

Proposed Plan Ill-thought Out

The South African property industry is worth R4.9-trillion, according to the Property Charter, and such a valuable industry needs to be protected and nurtured, legislation that is harmful in the long run and that doesn’t have a clearly thought out implementation strategy should be viewed with caution.
The current exam undertaken by estate agent hopefuls is onerous for university graduates, which doesn’t bode well for non-university graduates who will struggle with the legal and mathematical aspects of the exam.

Many Questions Remain

Should the 50% quota be enforced, will the qualification process be streamlined or even changed to accommodate all the potential new estate agents? Geffen says, “It’s also worth putting more faith in the educational capabilities of the companies themselves. It is in their interest to have effective and profitable agents; why not leave it to them to teach the techniques of selling and restrict the Estate Agency Affairs Board (EAAB) exams to the necessary legal aspects?” Will this not perhaps be for the betterment of the entire industry, and streamline the qualification process? Another suggestion that has been put forward is for more government or statutory body involvement in the form of financial aid to estate agents wishing to enter the industry, or grants to help with training and skills for proactive players in the industry.

Unreliable Nature of Remuneration a Barrier

Bill Rawson, CEO of Rawson Property Group, says, “One of the largest challenges is that remuneration in the estate agency industry is completely success based. Very few previously disadvantaged people are able to sustain themselves financially in the early months and during the one-year internship required for them to qualify to sell properly. It is common for a new entrant to not earn enough to support themselves for their first 18 months in the industry.” This challenge is a very real one in terms of the socio-economic backgrounds presented by many previously disadvantaged candidates; how, in real terms, will they afford not to earn any income for 18 months while they train and learn how to become successful estate agents, especially given the sheer amount of new estate agents that will be needed to meet the quota?

Market’s Competitiveness Another Hurdle

Rawson also says, “Another factor that must be taken into account is how competitive the property market is right now. Many estate agency franchisees and principals do not want to invest the time, money and effort required to up-skill new recruits while there are many agents (who already have the required training) who are willing to take up these jobs. Whilst the target is admirable, realistically it cannot be met. Many advantaged people do not make the grade, let alone people with a previously disadvantaged background. All of this being said, there is still hope for the future. I predict that there will be a shortage of agents in about five years’ time, when the older generation starts to retire and this will, in my opinion, open up possibilities for the Property Sector Charter Council’s 50% goal.”

“Target simply Unattainable”

Bryan Biehle, managing director of Huizemark, adds that with barriers to enter being too high and the cost and lengthy period of training required, the target is simply unattainable. Another important point he raises is the competition in actual areas – with experienced opposition agents fighting for the same market share, how can novice agents be expected to succeed? The interest rate hike is going to make it all the more difficult for experienced agents, new agents still need to adapt and learn unfamiliar areas, which can take a long time. Sellers ultimately choose who they would like to market their properties, and will look at things like experience, track records, how familiar they are with that particular area, how comfortable they are with the technology needed to effectively market a property in today’s climate, and this could mean that inexperienced agents, who have no knowledge of that area, will lose out.

By Angelique Redmond