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How long can Property24 increase rates in this way?

MAIN IMAGE: Richard Gray, CEO Harcourts SA; Ebo Quagraine, principal and co-founder Propertyzz.Com; Bryan Biehler, managing director Huizemark; Xoliswa Tini, principal and founder Xoliswa Tini Properties.

South Africa’s biggest property portal has had subscription price increases in some instances of between 50% and more than 300% over the last four years – is Property24 adding value or milking the cow?

Property24 has just announced their annual subscription price increase for 2020 which will become effective from 1 April. This is not unusual as the property portal annually increases their subscription rates. What does draw attention is the high percentage increases, especially in light of the current economic downturn which has negatively impacted house price growth and property sales in general – with the exception of the affordable housing section.

The latest subscription increases vary, depending upon the number of leads and price median, from 7% for the lowest category (1-10 leads R1,3m and less) to 26% for the top category (more than 1500 leads R7m and up). The average increase is 18% year on year.

Price increases are higher than inflation

Property24 justifies their annual increases by pointing out their business costs increase each year with their biggest spend on technical staff and marketing. “Since both of these costs are increasing at above the inflation rate, we need to increase the costs of our service to compensate,” says JP Farinha, CEO Property24.

This aligns with his explanation two years ago on the same matter. He then also added: “Our subscription fee increases will therefore likely always be more than inflation.”

Further reading: Property24 defends price increases

Question is: What business will survive under normal conditions when their output cost ALWAYS exceeds inflation?

Price increases above the inflation rate is one thing, but are increases of between 50% and more than 300% over the last five years justified? The cost per lead in the 1-10 leads R1,3m to R2,5m category was R295 in 2014 – from 1 April the cost per lead in this category will be R444, that boils down to an increase of 50,5% over five years.

The increase in subscription rates for the luxury market has been even more substantial. In 2014 the cost per lead in the 1 500 leads above R7m category was R2 995 – from 1 April it will be R14,196, that is an increase of 374%. This is the property sector that has not been performing well and last year actually entered nominal house price decline for the first time since the 2008 recession and is predicted to continue on this path during 2020.

Must consider SA’s realities

Property leaders say they are distressed and concerned about the continued high subscription price increases by Property24, especially considering the current downturn in the property market. The industry accepts that price increases must happen but says the portals’ increases are too high.

Richard Gray, CEO Harcourts SA, says the property market is not great and these increases are additional costs to carry. “In every market it is about supply and demand and people might reach a tipping point where they don’t feel they are getting value for money and start cutting back on how much they are willing to spend,” he says and adds that they also feel there isn’t any major extra value added to the service.

Ebo Quagraine, real estate entrepreneur and principal Propertyzz.Com, says he is considering to stop listing entirely on the platform. “The exorbitant costs of the platform is unwarranted and is point blank equal to extortion in my view,” he says.

He also points out that some of the new products offered by Property24, such as rental marketing management offered to landlords, appear to be in direct competition with estate agents, “the people upon whose back it has been built”.

Bryan Biehler, managing director of Huizemark, says he also thinks the “excessive price increases” will result in more agencies looking to alternative portals and more cost-effective options. “There is much talk in the market place around alternatives … more emphasis will be on brand/company/area portals and websites,” he says.

“Price increases are expected however the industry would prefer to see Property24 more aligned with agents in economically more difficult trading conditions, by being ‘more reasonable’ in their application of these pricing increases,” he continues.

Biehler says as long as Property24 continues to provide relatively ‘good leads’, they may get away with “exorbitant increases, but eventually the free market will determine where properties are listed”. “Many of the smaller agencies are up in arms over the rocketing price increase,” he adds.

Others such as Xoliswa Tini, founder and principal Xoliswa Tini Properties, are concerned the portal’s high price increases may make it difficult for new agencies, particularly if they are without strong financial support, to list with them.

“These kinds of increases are creating a discriminatory environment to the haves and the have nots. This is the era whereby we talk transformation in the real estate agency sector but moves like these are denying that opportunity for new property practitioners who do not have the privilege of ‘old money’ to play in the industry space. We all know for anyone to succeed in this industry you need advertising money and an accommodating platform to expose your properties.”

Tini asks how new and young estate agents, especially from previously disadvantaged groups, are going to be able to advertise on this platform. “I urge them not to close doors to the young and new practitioners who want to have a role in the industry,” she says.

Property24 explains the math

Farinha, in response to Property Professional‘s queries about their price increases, says the price increases need to be evaluated in the full context. For example, the category R1.3m-R2.5m > 1,500 leads subscription cost has gone up by 26.6% per annum since 2014. Farinha says this may seem excessive on the face of it but says the cost per lead in this category is still quite low. “At around R8.20 per lead this bracket is more than 5 times cheaper than the bottom brackets,” he says.

That also explains why price increases for the bottom brackets are much lower than for the higher brackets.

Secondly, although the top bracket > R7m and > 1,500 leads has indeed gone up by about 29.6% per annum, Farinha says this doesn’t affect the market much as the most expensive areas do not generate high volumes of leads. At present they don’t have any customers in this category. Across all the > 1,500 lead brackets they have only seven customers.

He says their largest number of customers are in the <R1.3m and 51-150 leads bracket which is now priced at R2 822 per month and has increased by 14% per annum since 2014. However, he says on a cost-per-lead basis they are still three times cheaper than their nearest competitor in this bracket.

Farinha disagrees that their annual price increases prohibit new agents, also those from less privileged backgrounds, from advertising. “Not at all. Conversely our pricing allows for new entrants to enter the market at a very low cost of R428 per month whilst our closest competitor’s rates start at R2,095 per month and that is before the coming 2020 increase. Our model allows new smaller entrants to grow into the more expensive segments as their business expands because we align our costs with value created,” he says.

“We are therefore confident that our prices reflect excellent value to agents and that the increases are fair when viewed on a cost-per-lead basis. It is also important to take into account the fact that inflation of technology related salaries and marketing costs is much higher than CPI,” he ends.

It seems Mr Farinha’s approach is not so much based on his increased costs, but rather on how much the estate agents can swallow.

Where lies the tipping point?

Gray says estate agents may reach a tipping point where they feel that they don’t get value for their money, but it remains to be seen when (or if?) this will happen with the country’s biggest property portal. However, South Africa has a free market system and there are already many alternative online alternatives and more affordable property platforms available to estate agents – and every year more competitors are entering the field. Biehler says many of the ‘free portals’ are rapidly gaining traction with estate agents. “Ultimately the agents will assist in steering eyeballs to these portals,” he ends.

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