Cementing Partnerships in Developments
How well suited is a traditional real estate practice to the new development game? Here’s how to forge symbiotic relationships with developers.
The role of the real estate agent has had to change with the times. The days of only listing in the weekend papers are obsolete, as is the practice of estate agencies being roped in to market a new residential development once construction is well under way.
Today real estate agencies are increasingly being called on by developers to consult on new builds, market them and of course, act as dealmakers between developers and buyers. Purchasers have more market information and data at their disposal than they have ever had, and don’t only make purchasing decisions based on price and the appearance of the units. Today’s buyers are street-smart: they study the price growth in the suburb, the volume of sales over the past year or two, crime statistics from the local police station, the transport infrastructure and public facilities, and weigh up these factors against the home’s amenities, rates and taxes or levies, as well as its market price.
Developers would be ill-advised to develop a project without the input and expertise of the foot soldiers on the ground. Enter the developing agent.
“In the early days we purely did the marketing and sales for developers,” says Peet Strauss, development manager for Pam Golding Properties in Gauteng. “The developer would approach us with his designed scheme and ask us to do the sales. This evolved very quickly into a much broader marketing assistance to the developer whereby we take on a more consultative and advisory role.
“This enabled us to ensure the developers were creating the correct product for the market. Over the past 13 years our involvement at Melrose Arch has shown that it is beneficial to get involved as early as possible in a project to ensure its success.”
CHANGING THE GAME
Some agencies have changed the game altogether, not content with only advising and marketing, but are flexing their development arm too.
“Our agency bought the developments licence from Seeff property services with knowledge and experience at hand in the new developments arena,” says Glen Fisher, projects director for Seeff Sandton Projects. “The aim is procuring the land, obtaining zoning and subdivisions, and guiding the developers to the correct product in the right location, at the price the market will pay and the banks will provide end-user finance for.”
Fisher procures stock on behalf of and from developers, and employs development-specialist agents and staff to market and sell the new developments. “Five years ago we identified that the developments sector will certainly grow again and that many homebuyers were looking to own a brand-new home within a security estate. Their families are safer and more secure there,” he says, noting that the growth in development sales means the company’s developments division is expanding.
“I believe that generally estate agencies are not equipped and geared up to enter into the new-developments space, and that residential agents will not be able to carry themselves financially from the time of the sale to the final registration of the properties,” says Fisher. “The agency needs to prove to developers that they can do a better and faster job in concluding sales, otherwise the developers will market and sell the units themselves.”
Some don’t believe developers should even be marketing their own projects. Harry Nicolaides, CEO of Century 21 South Africa, says developers should concentrate and handle the construction and completion phases, while the estate agency concentrates on the marketing and sales of units, and the administration of the sale agreements until successful transfer.
“At Century 21 we believe that the developer has its specialist function and the estate agency has theirs, and the two are different specialities,” says Nicolaides. “Another core function and value that the estate agency brings is the procurement of bond finance for the buyers. This is another specialist function that the estate agent is geared to handle better than a developer would.” More relevant than ever is that estate agencies impart knowledge on developers’ reputations and their financial ability to build and deliver the finished products on time, says Nicolaides.
DUE DILIGENCE CRITICAL ON DEVELOPER AND DEVELOPMENT
A due diligence process should be done on the developer to establish if the company has the knowledge and experience in developments. If not, then more guidance and assistance is necessary from the estate agency. This is according to Harry Nicolaides, CEO of Century 21 South Africa.
“The due diligence will also reveal if it has the financial resources to undertake the development and if it is the legal owner of the land,” he says. “This will determine if it is just a speculator.”
Glen Fisher, projects director for Seeff Sandton Projects, says complete market research needs to be performed on the new development to prove that the product, pricing and position in the market are correct so that the agency can deliver the sales in time for the developers to proceed with construction.
“One needs to research the developer’s history and success, and ensure that it is financially sound and does not have other developments and companies that could pose a risk to the relationship that you are entering into,” he says.
The due diligence on the actual development is imperative, and serves to confirm whether there is a market demand for the type of property on offer at that point in time, if the asking prices will be market-related at that point in time, and if the land has the correct approvals and zoning for the type of development envisaged.
“With these in check and satisfactory to us, and with the results of the due diligence on the developer being satisfactory, only then would Century 21 undertake to tender for the business,” Nicolaides says. “Anything to the contrary may have a serious negative effect on the viability of the development and may cause a serious delay on the proposed time for handing over finished units.”
While there is no consensus on agencies becoming developers in their own right, there is agreement that estate agencies are well suited to partnering with developers. “Estate agents are obviously suited for a developer’s business as they provide invaluable advice on the current market conditions for a specific area at that point in time (market demand and pricing) which may affect the viability of the development,” says Nicolaides, noting their database of potential purchases on hand, marketing skills and extensive knowledge regarding the legal issues involved in the sale and purchase of property.
“In any case, agents are registered with the Estate Agency Affairs Board and no party without a Fidelity Fund Certificate may sell property, whether it is a development or not. A developer may build a fantastic development, but if the marketing is handled incorrectly, or if the sale agreements are not administered correctly, resulting in delays or cancelled sale agreements, it could have dire financial consequences for the developer.”
Developers too need to consider the merits of the estate agency they employ to help them position the project and market to the correct pool of buyers, says Strauss. But how does an agency with no track record on new developments get its break? This is where the difficulty lies.
“It is a simple strategy of demonstrating our experience and illustrating the value we can add in refining design and effectiveness of a scheme, and assisting in resolving any development issues,” says Strauss. “Much of what we do is about personal relationships, where integrity, knowledge and honesty assist in building trust with our clients. Once a developer sees that it can trust in what you say and do, it becomes easier. Repeat business is a big part of our strategy.”
Relationships, having ears on the ground, being active in the specific market and tendering for new business is all part of the game. “With developers we have already built a relationship with, we do not often tender as they are aware of our value-add and the benefits we can bring to the partnership,” says Strauss. “For newer developers we do compete in a tender process.”
The agency needs to do its homework too, and cannot partner on a project just because it has no other prospects. “The developer must also have a sound track record and pose a minimum risk to the agency,” says Fisher. “The agency should perform market research on the development and product going to market with regards to right location, price and timing entering into the market. The agency should have choice of the product and not take it on in desperation to have stock on its books.”
Likewise, Century 21 only gets involved in developments where it’s a certainty that the product offering is market-related, that the developer has the financial resources to complete and deliver the finished product on time, where the developer is the legal owner of the land and where the agency is satisfied that the developer has the skill and experience to develop the project.
“We do not deal with speculative projects where the development will occur only once the developer has tested the market with presales,” says Nicolaides. “Dealing with speculative projects and speculative developers is a very costly marketing exercise for estate agencies with no guaranteed results and may harm the reputation of the agency if the development does not get off the ground.”
HYDE PARK TERRACE: A CASE IN POINT
“We consulted with the developer on its current stock in the market and the marketing approach it took,” says Glen Fisher, projects director for Seeff Sandton Projects. “We presented the Seeff developments way of performing market research, packaging or repackaging the product and market position.
“We then convinced the developer that the product, pricing and marketing performed was incorrect and we presented a new package and pricing. By consulting with our architects and builders, we created a new, fresh product with a more modern design and market-related pricing that banks will approve for end-user finance.
“We then presented the developers with a marketing campaign for the new product and the roll-out period from going to market and concluding sales and timeframes to deliver the new off-plan homes. We signed a new mandate with the developer and went to market accordingly. “Sales and construction of the newly packaged product is under way.”
Words: David a Steynberg
Images: iStock and supplied