Showing posts with label homes. Show all posts
Showing posts with label homes. Show all posts

Wednesday, 11 September 2013

Realty portals push many property brokers out of business

BANGALORE/NEW DELHI/MUMBAI: Falling home sales and rising competition from real estate portals has pushed many traditional property brokers out of business while forcing others to work on wafer-thin margins. 

The market for property brokers, who had flourised during the real estate boom not so long ago, has shrunk with builders and individual sellers preferring direct sales or the services of real estate portals that are ready to facilitate deals for free. The shrinking market is also driving down the number of applications for real estate broking licences. 

In Bangalore, it has fallen by 10% over the last two years, said Rahul Pai, governing body member of Bangalore Realtors Association-India (BRA-I). "At the BRA-I AGM in August, members talked at large about the competition from various sources like internet portals that are posing stiff competition to the traditional brokers," said Pai. 

"This, added to the unfavorable market conditions in real estate, has made it worse for brokers. In fact, several small-time brokers have actually gone out of business and are coming to us looking for jobs." The gloom is evident in Delhi, Mumbai and Kolkata too. 

In Mumbai, builders are approaching clients and investors directly through in-house marketing teams, which offer dedicated service to prospective investors and help save the 3% commission builders would have paid to property dealers. Developers are increasingly using direct marketing initiatives like e-mails, text messages and pre-launches to push their offerings. 

The few builders that are still working with brokers have reduced brokerage charges to 3%-4% from 6%-8% earlier. Most developers have also withdrawn the preferential location charges that were earlier being promised to brokers. 

"All large developers who are members of CREDAI (real estate apex body) have their own marketing team or are in the process of developing their own sales team for better customer service and building direct relationship with customers," said Harsh Vardhan Patodia, president, CREDAI Bengal and vice-president CREDAI National. 

Gaurav Gupta, joint secretary of Raj Nagar Extention Association, said: "With the slowdown happening in the market, most developers are now getting into direct sales and cutting down on the cost of the brokerage." Referral clients, too, are posing a threat to the broking community. 

"Builders are now luring new buyers through their present clientele, eliminating the role of agents and brokers," said Jyoti Shroff, partner at Bangalore-based real estate consultancy Tirupati Associates. "A reference of a prospective client gets the buyer up to Rs 50,000 discount. This has led to fall in our business by about 50%, especially in the last six months." 

Akhil Kapur of real estate brokerage firm AJ Housing said his revenue is down by 20%-30%. "The number of transactions has not changed but the price band of transactions has come down, which indirectly affects my revenue," Kapur said. Brokers in Delhi echo the same sentiment. 

"Transactions are not happening and there is no movement in the market. Our business has come down by more than 50%," said Sumit Joshi, director, Real Credit Consultancy, a mid-sized real estate broking firm in Noida. "Brokers who are unable to sustain are relocating from premier locations to smaller offices elsewhere and are also trying their hand at other businesses." 

Websites, too, are playing spoilsport for brokers. "Certain developers are at the moment more bullish on the online sites and social media to promote their properties among NRIs and strengthening their direct sales," Gupta said. 

Bangalore-based Common-Floor.com is sending out chauffer-driven BMWs and Mercedes to pick up premium clients for sight visits—facilities that a broker would never be able to match. "There is now a market trend of online customer enquiries, which are being serviced directly by the builders, and this is picking up to the extent of 15% to 20% of the total sales in the below Rs 50 lakh segment. In this category, the main lead generation takes place through the project publicity and promotion," CREDAI's Patodia said. 

Unlike the markets of north and south, the role of brokers was elementary in the east. But, over the past few years, the trend of brokers marketing a project had picked up in West Bengal. Following the rough patch now, brokers across the east are in a fix as builders endorse orthodox ways of direct sale. 

"Kolkata market is not only run by end users but also salaried speculators, who do not live in the city. The latter generally seek brokers' help to locate and zero in on a property. As investments have gone down in real estate, the broking market too has invariably seen a crash," said Sanjay Jain, MD, Siddha Group, which recently sold 70% of its property through direct sales.

Thursday, 29 August 2013

Is real estate next in line to collapse?

Unless govt deflates the housing bubble in an orderly manner, the collapse by market mechanism will surprise generations


While the spotlight so far has been on the rupee and the equity markets, real estate prices have started to bear the impact as well. A Business Standard report points out that of the 26 cities surveyed by the National Housing Bank (NHB), as many as 22 including Delhi, Mumbai, Pune, Bangalore and Chennai saw a drop in property prices during the April-June quarter, compared to the first quarter of this calendar year. An all-round squeeze in liquidity and dearth of buyers have led to a fall in prices across the country.
 
Developers who were holding on to their prices despite sluggishness in demand have blinked first. Yet the NHB chairman and managing director R V Verma
 feels that there is more to come.
 
A report by Manish Bhandari
 of Vallum capital says that the endgame of speculation in Indian real estate has begun. Bhandari says that a multitude of factors are converging after a decade, setting the stage for a deep correction in real estate. The story in India has all the ingredients of a making of a bubble a la Mississippi Scheme, the South Sea Bubble or the Tulip Mania.
 
Real estate prices in India are among the highest when compared on a per capita basis. Rent yield in India, which can be used to compare returns within real estate across countries as well as to compare across asset class, is one of the lowest in the world. Indian real estate earns a rent yield of only 2.7 per cent compared to 4.7 per cent in the US and 4.5 per cent in Japan.
 
Within emerging markets, Indonesia has a yield of 9.3 per cent while Philippines real estate investment earn a rent yield of 8.6 per cent. The only other country which has a 2.7 per cent yield is China which is already facing a bank-fuelled bubble like scenario in its real estate sector, which its government is desperately trying to control.
 
RBI is sucking out liquidity like a sponge and the sector that will be the worst affected is real estate. Bhandari says that the fall in property prices is likely to start from the deleveraging cycle by Indian banking sector which is running a multi-decade investment to deposit ratio of 108 per cent. Balance sheets are expected to be deleveraged over the next three-four years. The previous deleveraging cycle in 1997-2003 saw real estate prices correct by 50 per cent in Mumbai Metro Region.
 
Adding to the liquidity crisis is the likely exit of private equity (PE) players from the market. Average life of private equity in real estate is seven-eight years. Year 2013 marks the beginning of private equity returning back to shores. Manish says that PE players entered India at an exchange rate of 45; they will now be exiting at around 70 levels a loss of nearly 50 per cent in currency conversion itself. The exit of PE funds will create a distress sale situation in the real estate market, shortly leading to depressing price situation for the next 18 months.

Bhandari feels that unless the government deflates the housing bubble in an orderly manner, the collapse by market mechanism will surprise generations on how a nation on its way to prosperity by speculating on a piece of land eventually lost a fortune.