One of the hot topics for 2015 is black economic empowerment (BEE) in the property industry. To date, reformation has been slow and sluggish, with very few property companies achieving real success. That’s not to say that there aren’t property companies that have – both RE/MAX and Leapfrog are at the forefront of empowerment (at least as far as black ownership is concerned) in the property industry, but the question must be asked, why have more companies not joined them?
Leapfrog was first in empowering the property industry long before it was mandated to do so. In 2004, BetterBond (now BetterLife Group) sold 26% of its share to the New Deal Trust. The objective of the New Deal Trust is black economic empowerment in the real estate industry and to this end the New Deal Trust sold its BetterLife Group shares and used the proceeds to establish Leapfrog Property Group while retaining majority ownership. Leapfrog upper management now comprises founder and chairman Jan le Roux, Bulelani Ngcuka and Bruce Swain (managing director). It was South Africa’s first black-owned real estate group, currently 70% owned by the New Deal trust. So why are there not more companies following on from this empowerment?
Bruce Swain said:
“Leapfrog’s BEE model was inspired by the anomaly in the property industry. About 90% of the people in South Africa are ‘black’ and yet at the same time ±90% of real estate agents are ‘white’. This is unnatural and unsustainable and has to be addressed.
“Changes to current legislation and empowerment initiatives have had no particular impact on the property industry as yet. Steps taken by the EAAB and regulations promulgated by the responsible minister, however, did – negatively.
“Blacks, unlike whites, did not grow up with their parents and friends participating actively in a property market. This means that when democratic government arrived in 1994 blacks did not join the property industry overnight – and most definitely not successfully; finding one’s feet after decades if not centuries of exclusion is not easy. Black property practitioners are therefore still ‘emerging’ – and for good reason.
“The minister and the EAAB at the same time felt the compelling need to raise the entry level into the industry and the on-going educational standards dramatically. (Education is good, but one does sometimes get the feeling that something that was not exactly broken is being fixed at a huge cost to many). The result is that, to the best of my knowledge, hundreds if not thousands of black estate agents are trading illegally without being registered with the EAAB. It is unfortunate that initiatives to promote transformation came hand in hand with regulations raising the bar at entry level, not to forget compounding compliancy issues.”
And with very little benefit in becoming empowered in the property industry, this could very well explain why only a handful of property companies have partnered with black economically empowered companies to affect any real transformation.
There are rumours that the Property Practitioners Bill will enforce compliance with the Property Charter, but will this be in a positive way or will it simply breed bad behaviour in the form of fronting?
So, what are the most pertinent challenges to agencies becoming more black economically empowered? Swain said: “A vast number of estate agencies are small, very often family-owned, businesses. Even if these businesses were able to find black entrepreneurs interested in taking up equity, no businessman worth his salt would easily purchase a minority stake in a small family-owned business. Qualified black practitioners are very hard to come by (as explained above). In terms of the current Act, all directors/principals of all real estate agencies must have an NQF5 qualification. This means that only fully qualified black practitioners are required and can take up stakes in these businesses, which is very challenging.
“The standard of employment qualifications are equally hard to meet – again, there is a scarcity of black property practitioners. Management structures in the vast majority of small, family-owned businesses are nonexistent – the Charter standard is almost impossible to meet.”
RE/MAX and Z Capital Properties, a prominent black empowerment company, have recently merged, with Z Capital purchasing a 45% ownership interest in RE/MAX of Southern Africa. A press release stated that the deal was to position the company for continued growth in all markets and to introduce black ownership at the highest level, after the Department of Human Settlements and the EAAB showed that transformation will be high on their agenda in 2015, with proposed legislation to ensure transformation.
The merger between RE/MAX and Z Capital Properties has shown the real estate industry that transformation is possible and, along with Leapfrog, these two companies are pioneering the way for real transformation, without being that isn’t elicited through negative legislation, in the industry.
Amanda Jivhuho, CEO of Z Capital, said: “The legislation has encouraged us to enter into the property industry on terms that work not just for us but for RE/MAX as well. The landscape of the industry will certainly start shifting to being more inclusive. This will encourage property ownership that is facilitated by agents who are credible and comply with the relevant bodies such as the EAAB.
“The agency bodies and government have done their part in changing legislation and setting timelines for organisations to transform. The real task is for real estate agencies is to find it in themselves to support the foundation that has been set.
“The RE/MAX-Z Capital Empowerment deal is certainly leading the pack, with the hope that it will encourage other real estate groups to follow suit.
Ultimately, it is in the best interest of our country and its people who are in this industry. Z Capital is a strategic partner, and like any new relationship, we are working at integrating and ensuring that our synergies yield the intended benefit of increasing our agent pool from 2,000 to 3,000 in the next five years, predominately with the spectrum of our nation being represented in our agents and broker agents.
“From a day-to-day perspective, not much change is happening at the immediate moment. The greatest impact will be in the strategic steering and channelling towards increasing the number of principal-owned estate agencies to come from the previously disadvantaged group.
“RE/MAX Academy is being set up to assist our agents and learners in being put through a world-class training programme. Currently all RE/MAX estate agents attend our RE/MAX Accelerate, 100 Days to Greatness by Brian Buffini course.
“Z Capital brings a strategic partnership and a strong business and entrepreneurial mind-set to this merger. For the industry, we want to pioneer and encourage transformation, increase the number of agencies and encourage young people to enter it.”
The positive mind-set and shift that the merger has brought to the property industry is one of real empowerment and transformation and, while the merger is still in its infancy, it has shown the property industry that not only can it be done but also that there are real benefits to looking for a strategic fit with a black economically empowered property company.
Adrian Goslett, regional director and CEO of RE/MAX, said: “The merger was a result of the increased government involvement within the real estate industry and statements from the Department of Human Settlements and the head of the EAAB that they required 10,000 new agents to join the industry from previously disadvantaged backgrounds.
“Transformation is required and RE/MAX has always wanted to position itself as the leader in the industry. In order to continue to be leaders over the next 10 to 12 years, we needed to change and be proactive in embracing the way the industry is moving. We are the first of the top six real estate brands to move towards transformation. The merger was in line with our goal to double our agent count over the next five years and grow entrepreneurs within the real estate industry. The new agents will be trained and mentored to become successful real estate agents and brokers.”
When asked what the biggest challenges facing industry empowerment are today, and what benefits there are in empowerment mergers, Goslett said: “The greatest challenge is finding partners that carry a similar ethos and values and that have the knowledge to add value to the real estate brand. RE/MAX was fortunate to be able to align itself with a partner that adds a tremendous amount of value and can open doors for the organisation into markets that we previous were unable to easily enter.
“In 2014 about 65% of RE/MAX buyers were of colour, which is up from the 50% seen in 2013. From an agency perspective, we are able to tap into a rapidly growing demographic in the market. From an industry perspective, more and more people from disadvantaged backgrounds are able to change their lives and the lives of those around them by becoming part of a growing industry that rewards hard-working individuals.
“More and more agents from previously disadvantaged backgrounds will come into the industry and will start opening their own franchises. This will create further employment opportunities for BEE agents and younger-generation agents who want to make a career out of property sales.”
The EAAB has attempted to open the doors of the property industry to younger disadvantaged men and women through its One Learner – One Estate Agency youth programme. In essence their proposed programme is aimed at partnering newly placed intern estate agents into property companies that will in effect mentor and supervise them for 12 months.
The end goal of the programme is to enhance economic transformation in the sector and to increase the level of representation of youth within the estate agency environment. But has it worked, and has it seen any real uptake by the property industry?
At present the EAAB is still advertising for property companies to sign up and participate in the programme, so the actual number of participants is unknown, but with the programme going live this year it will be interesting to see how much agency cooperation there is for the programme, which seeks to add 10,000 new estate agents to the current market to speed up economic transformation.
Funding was promised but has not yet materialised. Despite numerous requests for comment, the EAAB declined to comment on the youth programme and on the issue of empowerment and how government and property companies can better work together to build real transformation.
IEASA President Jeanne van Jaarsveld commented on empowerment in the property industry: “The new Property Transaction Bill, pending being signed into law this year, certainly will focus on empowerment and transformation of the industry. The EAAB has already got great initiatives in place, sucha as One Principal, One Agent, which will bring transformation to the forefront. We expect this to be rolled out by the EAAB as well during the course of 2015. The most beneficial aspect of transformation will be for the big groupings of brands in SA. This could unlock potential partnerships with Department of Human Settlements in housing projects and the like. Transformation can already be seen in small real estate agencies where a number of agents that are employed are black, and this has unlocked very lucrative business for agents servicing the township markets.
“The IEASA is very pro and supportive of transformation. It is a founding signatory to the Property Charter and is actively involved in other government bodies, for example, SSETA. Education is the key to transformation. Investment in training and education will be key in creating a sound understanding in the industry. This is where the IEASA will play a vital role in supporting transformation.”
The Real Estate Business Owners of South Africa (Rebosa) is the leading organisation in the country that is looking to the future aiding the transformation of the property industry. Said Chief Executive Jan le Roux: “The future is positive. The property industry is a huge contributor to the general economy; the property industry needs a strong and effective voice. Government needs to communicate with the industry and can only do that effectively through bodies like Rebosa. We can and will inform/educate our members as far as practical steps in effecting transformation are concerned.”
When asked about the challenges faced in the property industry, Le Roux said: “Current legislation and regulation is not helpful. Investors (not practising/qualified as estate agents) can’t take up directorships in real estate companies unless they have served a one-year internship and have completed NQF4 and 5.
“The costs for new entrants are high, namely training, and limited or zero income in the first months. This has now been exacerbated by the launch of Continuing Professional Development at a relatively high cost. The Property Practitioners Bill promises to present even more challenges. Transformation is not easy and ownership is but one element.”
While there are many challenges to real transformation in the property industry, there are success stories too, and companies like RE/MAX and Leapfrog have shown that it is possible to effect real economic transformation and benefit in the process. With new legislation on the cards and transformation at the top of the country’s agenda, property companies would do well to follow in these footsteps before the government introduces more stringent laws or legislation that is punitive instead of beneficial. Transformation and empowerment initiatives are here to stay and the property industry needs to participate in effecting empowerment.
Words: Angelique Redmond