Will real estate agents in Australia go the way of those in China — where the number one portal is competing directly against them?
The experience of agents in China shows what could happen here if one or more of the big local real estate portals decides to compete directly with agents.
The dominant portal for people who want to buy real estate in China, known as Soufun.com, has angered agents first by dramatically raising prices and then by going into competition with them.
(Disclosure: I do public relations for Juwai.com, which is the Chinese portal for people wanting to buy real estate outside of China.)
Soufun’s fight against agents got heated in August. Thirteen Chinese real estate agencies, all in the large Shanghai market, came together to boycott the portal.
To put this in Australian terms, imagine 35% of the real estate agents in Melbourne simultaneously pulling all of their advertising and listings from realestate.com.au and/or domain.
Their complaint is that Soufun raised its prices 10 times in just five years, pushing the cost to agents up by a multiple of 10.
The agents said, they “feel like they’re dealing with a monopoly and are ‘held hostage’”’ by soaring advertising rates,” reported the Wall Street Journal. In language that will sound familiar to any reader of this blog, the agents accused Soufun of “unfairly using its market power to raise prices,” they said.
Not everyone took the agents’ side in this battle. Here’s a translation of one social media post that represents the skeptics’ point of view:
“It’s the Internet age and real estate agents who only stick to bricks and mortar will only be dragging out their feeble existence.”
Portals Competing with Agents
Things have gotten considerably more difficult for Chinese real estate agents since that pleasant thought was posted online.
Soufun is still charging high fees, but that’s not all. Now, the portal is also competing directly with real estate agents. This development is being cheered by investors, with Deutsche Bank upgrading SouFun’s stock from “Neutral” to “Buy.”
Soufun intends to become a “one-stop-shop for developers”, to the detriment of the agents’ role in new-development marketing.
SouFun has also invested in three large agency networks, including Century 21 China. In its press release, Soufun says it will now give Century 21 “preferred” services over competing agents.
Economic Journal Insight speculates that Soufun wants to “cut its dependence on property agencies.” If it can work directly with consumers, it will get the whole commission check, and not just a relatively small marketing budget.
Soufun’s plan seems to be succeeding. Even before its investment in Century 21 this week, it already earned about one-third of its revenue from the real estate agents it directly owned.
What Is Your Future?
Soufun’s future plans can only include expanding its beachhead on the territory of real estate agents. If it succeeds, there are three obvious goals that would motivate it:
1. Put competing real estate agents out of business.
2. Deskill and cut the employment costs of the agents it controls.
3. Shift more of the real estate sales process to low-cost online interactions that allow for bigger margins.
Soufun’s closest Australian partner is realestate.com.au, which announced an agreement with the Chinese domestic website earlier this year. To be fair, that doesn’t necessarily mean REA will begin implementing Soufun-style changes in Australia any time soon.
REA’s close relationship with Soufun does, however, make one very curious to know exactly how far their partnership will go. Will realestate.com.au will follow Soufun’s path to “cut its dependence on real estate agents”?
If REA did compete with agents, which side would win?
I don’t have the answer to those questions. I’ll leave it to you to decide for yourself which future you believe in.