Could we be heading the same way as overseas portals?

The UK and Australia don’t have any industry controlled portals, they are owned by larger companies or are listed and as such the sole purpose of these portals is profit. But this profit comes at the expense of the real estate agents who have no choice but to pay high fee’s to list their property or lose out to competitors. Yet in the USA and New Zealand industry controlled portals have shown that they are able to keep fees in check. The question that arises from this is where does South Africa fall? Will we ultimately be faced with a situation similar to the UK and Australia where two dominant portals are able to set the fees and agents will have no choice but to pay?

The Battle of Print vs Digital

In days long past, people checked the glossies and classifieds to find homes they wanted, newspapers had entire sections devoted only to property. But with the rise of digital, this is now all available on a single website with thousands of properties listed on a single property portal. According to Market Insight, the total UK classified property advertising spend was £389 million in 2012 this comprised of a 45 per cent and 55 per cent split between digital and print advertising, respectively. When digital started to eclipse print media it was expected that this would see costs decrease, this is far from the reality. Enders analysis estimates that in the UK digital advertising will comprise 234 million pounds, while print will comprise 193 million pounds.

The Advantage of Going Online

So why is digital advertising so expensive? Could it be that property portals have gained dominance and are now able to set their price for advertising with estate agents having no choice but to pay or lose ground to their competitors? Two US Real estate property portals that started off in 2005/2006 are now valued at 5.3 Billion dollars, (Zillow) and 3 Billion dollars, (Trulia). The driving force for most property portals is to get a bigger piece of the advertising spend of real estate agents in that country. The reach and uptake of digital advertising has become so high that it has allowed property portals to dominate the property search sector for real estate. And many of these property portals are publicly listed companies with one singular goal in sight, profit, whether it’s at the expense of the customer or the estate agent. Let’s take a look at who the dominant property portals are overseas.

Foreign Property Portals

Looking firstly at the UK and Australia, the dominant property portals are Zoopla, Rightmove and Realestate.com.au. Zoopla and Rightmove are both public companies traded on the stock market and they charge high fee’s to estate agents who use their portals. Zoopla averages £301, while Rightmove averages £607 for the basic subscription, with a required minimum of ad on products to be purchased in addition. And the reason they can charge such exorbitant fees? It’s simple, there isn’t any competition. Although, that may be set to change as an agent owned property portal is in the pipeline for the UK. Called, OnTheMarket, it proposed to be agent owned and have signed up 3000 agents in the first 5 months. What it is looking to do is take away business from its two rival giants, by making agents sign a contract stating they will use only one other portal, agents will have to decide between Zoopla and Rightmove and these two mammoth portals will lose some of their stranglehold on the industry. In Australia the fees are even higher. Realestate.com.au has different models of payment, the first is for a featured listing, $130, and $525 for a highlighted listing and then lastly a premier listing will cost you $2790. They have also introduced a new market based fee which has estate agents up in arms over how much they will pay to market homes in premier areas! Glenn Batten is the General Manager at First National Real Estate Nerang and had this to say,

Realestate.com.au are proudly trumpeting that the prices are now market based as though this is somehow going to make agents feel better.  They even provide the requisite scenario where an agent will save money on this new plan. I believe like most price changes before it, 10 to 15% of agents will see some sort of modest reduction in their monthly spend.  About 30 to 40% will receive a small to medium increase only but about 45 to 60% will attract significant rises in their total spend with the portal, if they continue to sell the same level of add on products.”

But what could have prompted such a price increase? Well thanks to a boycott over prices by the second largest property portal in Australia, Trade Me, Realestate.com.au was able to become the largest property portal in Australia and now they can afford to hike the prices as estate agents have no option but to pay or use a site that simply won’t get the same number of views. However this is likely to change now that TradeMe has revised their prices in an effort to win back estate agents and reclaim the footing they have lost.

Where does South Africa Stand?

It’s frightening to see how easy it is to create a portal that can simply charge what they would like because they have no competition. The question is will this happen in South Africa? If you are an estate agent in South Africa then you use one of two portals, Private Property or Property 24, the one is controlled by a major conglomeration and the other by an international equity fund, neither are controlled nor owned by the industry as a whole. As such they can set their fees and you would have no choice but to pay or risk losing business as your competitors gain a foothold over you because they do use one of the two dominant portals in South Africa.

The Merge of US Property Portals

What’s even more alarming is what has just happened in the US, if you haven’t heard of Zillow and Trulia, they are the two largest property portals in the US. Zillow has 77 million unique users per month while Trulia has about 47 million. Zillow has just announced its intention to buy Trulia, a merger that will completed in 2015 and will see the two largest property portals combined. This merger will see these two companies become the largest force in online real estate. Zillow-Trulia will now control inventory, pricing, merchandising and the customer relationship. While consumers are not yet buying homes online, this could very well change in the future and with dominant portals controlling the market it’s understandable that estate agents are concerned about their future and what role they will play. The other downside to such total domination is of course pricing, although realtor.com owned by the agents has been effective in keep pricing in the US far more favourable than is the case in the UK and Australia. But the newly formed Zillow-Trulia will be the clear market leader and estate agents may have no choice but to pay up, and will also be at the mercy of whatever changes Zillow-Trulia implement to existing agent and customer relations.

The Future of Real Estate Agents

Could estate agents simply become obsolete in the future? This is certainly a fear worth noting, as property portals gain more and more dominance and allow not just estate agents but also private sellers to list houses, they are potentially changing the future of the property industry. What’s to stop them from eradicating the need for estate agents in the future and simply taking over the sale and marketing of houses from private sellers?  Without competition there really is nothing stopping them and as large portals grow in dominance estate agents should be worried about who will control the property market in the future. This was the Private Property model until quite recently.

Looking at how property portals have gained absolute dominance in countries abroad will we see this model applied here in South Africa? The answer is absolutely yes. Currently the key players in the property portals in South Africa are Property 24, with the backing of Naspers, who reported a 62.7 billion profit for 2013, and Private Property owned largely by a major international equity fund. While other property portals exist, none have the clout or numbers that these two property portals currently have and if looking to countries abroad have shown anything it’s that without a portal that is industry controlled, these two property portals could very well become the next Zillow-Trulia, Rightmove or Realestate.com.au leaving estate agents to their mercy.

The Way Forward

The problem and the solution are very simple, overseas property portals have shown what happens when you have a few property portals who totally dominate the market, you effectively allow them to set the price and the conditions for digital advertising and looking at what has happened in the US the dangers in allowing this to happen are very clear. In order to ensure that prices are reasonable and fair and that estate agents remain a necessary part of the real estate process will require the industry organising themselves quickly and effectively.

 

Words: Jan le Roux, CE Rebosa