Residential property industry faces another challenging year
With another sluggish year likely for residential property in South Africa, estate agencies are facing a challenging twelve months.
“As with 2011, property prices are just holding their own which impacts on agents’ commissions,” says Herschel Jawitz, CE of Jawitz Properties. “Unlike other industries where professional fees are charged, our commission doesn’t go up with inflation each year. The only ways our earnings increase is if property prices increase, or we sell more properties.”
If property prices only go up by two or three percent in 2012 then, in real terms, commission earnings will decline. “Added to this, costs are increasing by at least 10%, and the equation becomes interesting. Normally, if you are sacrificing margins you can try to make up the numbers with higher volumes but the numbers of sales for the most part are going to be flat year-on-year and in some areas may even decline.”
The economics are simple – fewer sales, flat prices, and homes taking longer to sell equates to estate agencies spending more money with less return.
Because of these factors, 2012 will be another very competitive year for the industry, as growth will have to include taking market share from competitors. “The bigger brands should be better off by the end of the year,” he says.
The decline in the number of estate agents supports this view with the fall off in agents coming mostly from the smaller agencies that have not been able to sustain themselves in a challenging market. The number of estate agents has decreased by 60 percent since the height of the boom in 2006/7 to about 25000. Most of the bigger national franchised brands or the larger brands in the metro areas have fared significantly better in this period and while absolute market sales may not be increasing, relative market share will have grown.
In addition to market share growth, the larger franchised brands are also seeing the benefit of the smaller independent agencies realising that the support of a national brand may be key to not only growth but also survival - especially if the current market persists for a few years. Most of the franchised brands have experienced solid growth in the number of new offices opened. Jawitz Properties grew its franchise network by 35% in 2011 including opening franchised offices across the Eastern Cape and expanding into Kwa-Zulu Natal. “I expect this trend to continue this year,” he says.
Key success factors for 2012 will be similar to many industries – meeting clients’ service expectations, employing technology as a critical enabler and most importantly, upholding the integrity of the brand and the people that represent it.