Property Portals in South Africa - A response to Jan le Roux

Property Professional Magazine

In the September/October 2014 issue of ‘Property Professional’ magazine, Jan le Roux, Chief Executive of Real Estate Business Owners of South Africa (Rebosa) writes on the continued growth of online property listings, and the dominance of Property24 and Private Property. While it is certainly a worthwhile debate, he raises a number of issues that warrant a response.

The article begins with some analysis of the market and the comparison of print vs digital, with a handful of interesting statistics showing the spending split between the two media. But suggestions that “costs would decrease” as digital became more popular made me raise an eyebrow.

Unlike creating a physical product, where economies of scale make the cost of production cheaper as demand increases, the costs of creating and enhancing software to run a property portal rather increase as readership grows and the systems become more complex. In essence, the model often works in reverse in the software world.

The article also takes issue with increasing costs of advertising online. Perhaps the real problem here is that we have become accustomed to tools on the internet being free of charge. Google hands over Gmail, Google Drive and dozens of other services without money changing hands; Facebook is free; entry-level Evernote is free... even though those products require millions of dollars to build, run, maintain and improve. Because of this, when you enter the market with a new portal the expectation is that it will be free. Often, and I’ve seen this in many online products around the world, the product does indeed start out free of charge to build a customer base and gain traction, before incrementally charging for its services.

But the only way a portal can begin to charge for its service is if it offers customers value. It’s a free market, and without a portal offering value there’d be little reason for the customer to pay up. Therefore, the sheer volume – and success – of the two dominant portals in South Africa are testament to the fact that there is enormous value on offer for estate agents.

In my opinion the article, under a discussion of ‘The Advantage Of Going Online’, doesn’t properly deal with these advantages. It doesn’t mention the instant reach a listing can offer, putting a property in front of thousands of house-hunters within seconds.

Instead Mr le Roux focuses on the fact that the portals have become so effective at marketing properties that the “agents have no choice” but to list. But of course the agent has a choice! They are entirely free to market the property as they see fit, using whichever avenue they feel is the most efficient way to market - and sell, for a hefty commission, let’s remember - a property.

The enormous growth in listings and viewership is just further evidence of the efficacy of the portals - of the value that they add to the property industry. Agents list with the major portals because it works, because it generates leads faster and more effectively than any other medium. In a free market economy any portal – local or international – can only charge a fee relative to the value on offer and what the market will pay. If not, they wouldn’t have a business. Asking ‘So why is digital advertising so expensive?’ is the same as asking why property is so expensive. The answer? Supply and demand, dictated by the market.

The number of people wanting to be featured in the top search results for ‘Lynfrae, Cape Town’ drives up the cost, in exactly the same way as the enormous demand for the actual erven has seen prices soar in this suburb of Cape Town. And, as buyers unwilling to pay the – what some would call inflated – prices of the suburb look elsewhere for better value, so the same applies to online real estate. Agents would surely not consider slashing their commission, nor the seller their price, if demand exceeded supply… so why should that apply in the online space?

The article also seems to draw focus to the portals making a profit. Yes, portals make money off fees paid by agents. But where’s the problem? That profit comes after long years of investing into the business: it costs a fortune to build world-class property portals handling tens of thousands of properties. Profit keeps a business running, means that its staff are paid and the portal evolves with the times.

Le Roux’s concerns about the impact of the Property24/Private Property duopoly (or even a monopoly down the line, if one portal were to buy-out the other) are not unfounded, but once again this is simply market forces at play. If, in the worst-case scenario, a dominant or monopoly portal were to increase fees to unjustifiable levels the outcome would be fairly straightforward: agents and real estate professionals would find another more cost-effective avenue to reach buyers. Or, as Mr. le Roux himself cites in the case of New Zealand, a boycott or lobbying by the industry could be used to negotiate more equitable rates. Looking internationally, South Africa’s duopoly is more the exception than the rule, and this is certainly to the agents’ financial advantage as there is at least the opportunity for competition. If a buy-out were to happen, and I have my doubts it will, monopolies can also have advantages as an agent only has to list once, pay one set of fees and their target audience isn’t split across multiple platforms - so it can have an upside too.

A dominant media is also not without precedent: in the Western Cape the Weekend Argus is far and away the only effective option for advertising property in the print media. Perhaps this ‘monopoly’ should also be scrutinised?

Finally, Mr le Roux asks whether portals will eradicate the need for estate agents. It’s an interesting question, and not one with a simple answer. If the only value an agent brings to the process of purchasing a home is the initial lead introduction, then such agents may well become obsolete. But for agents that provide real value to their customers in navigating and simplifying the complex process of purchasing property, I don’t see them going anywhere. The travel industry makes for a good analogy: when online bookings took off and industry commissions were slashed a decade ago, there was an outcry over the need to charge clients a service fee. In the end, the agents that provided value and embraced – not demonised – the new technology thrived.

So too with estate agents. Those who embrace technology and use it to their full advantage (for instance using location tools to their advantage, not fearing they will lose the lead) will be just fine. They may need to evolve and provide value in other ways, but they will thrive.

I’d argue that the way forward is simple. If agents don’t want to pay the price of listing on the top property portals, then simply don’t list. If the value’s not clear, market in other ways. As for the notion of a competing portal underpinned by the property industry itself, there is certainly nothing stopping them.

You can read the full text of Mr le Roux’s article at http://www.propertyprofessional.co.za/septemberoctober-2014/ or http://www.propertyprofessional.co.za/property-portals-south-africa/

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