Realtor HSR's commission scheme shakes status quo

Singapore

A FORMER banker and a major shareholder of two Singapore-listed companies, Tong Kooi Ong is one man whose penchant for shaking up the business turf and needling the big boys with his niche-market ideas in Malaysia has won him both admirers and arch rivals.

Now, amid a relatively torpid real estate market in Singapore and as property brokers grapple to protect their income from further injury, Mr Tong is at it again - this time through HSR International Realtors, a firm owned by Catalist-listed 3Cnergy which he majority owns since March last year.

Just under a month ago, the mid-sized realtor punched above its weight and unveiled a scheme which, in Mr Tong's own words, has set off "bickering" among its rivals.

At the face of it, the "100 per cent Powered Scheme", which takes effect next January, is an undercut strategy to woo sales agents so that HSR can scale up and be better able to land big jobs such as project launches.

In reality, it's not as altruistic as the term 100 per cent commission scheme suggests. "It's a simple scheme but it's not like we don't take any commission at all. We won't be able to survive if we did that but we don't want to milk those who make the effort to earn more income either," Mr Tong tells The Business Times in an interview.

Put simply, HSR will charge each sales person a maximum amount of S$3,800 a year as opposed to the industry practice of sharing 10-30 per cent (some smaller firms charge agents 5 per cent) of agents' commission. Team leaders get an over riding commission of 30 per cent which comes from the S$3,800.

HSR's "peculiarly interesting" size - the firm is neither big nor small - with a sales force of 1,300, puts it in good stead for such a scheme.

"I'll be honest. If I were ERA, I won't do it. The establishment would not want to destroy the existing business. And we wouldn't do it if we had only 500 (sales people) either," he admitted.

The scheme was hatched given the difficult conditions - new home sales here have halved and property prices have dipped while many sales agents have ditched the sector altogether. HSR knows this only too well as it has lost 20 per cent of its sales force in the past year.

Falling commissions, not unlike what happened to stockbrokers when online trading picked up fast and furious, may be an inevitability. These days, property buyers and sellers can readily tap information previously not available such as pricing, listings, comparative valuations, transaction details and other analytics on various digital platforms.

"Whether we like it or not, intermediation will be less and less relied on. Less of each person's time will be spent engaging with the agents," says Mr Tong. One would do well not to ignore that remark; PhileoAllied Bank, a bank which Mr Tong had founded in the early 90s was the first in Malaysia to roll out online stock trading in 1995. For doing that, he had earned the ire of Malaysia's stock exchange whose members comprise stockbroking firms; it went to the courts to block the innovation, perceivedly to defend its commission and market share. As it turned out, Mr Tong's move was spot on.

"The business model we have is sustainable, once you remove emotion and greed. Why should a salesperson who makes S$200,000 a year in commission have to part with S$20,000 to the company while another who makes S$30,000 only pays S$3,000? Does the high performing salesperson receive six times more support? No.

"Mark my words - in two years, everyone will say it was so obvious," he says.

It's a very simple argument, he says. Simple yes, but somewhat less attractive. Some agents point out that HSR is not actively involved in major property projects which many agents rely on to derive a bulk of their income.

This could partly explain 3Cnergy's S$6 million synergistic acquisition of property management services firm Orientis Solutions, which was completed just two months ago. "Orientis helps landowners conceptualise, carry out feasibility and help get approvals on their projects and when they are ready to launch, HSR presumably gets to handle that for them," says Mr Tong, who is also 3Cnergy's chairman. He is also a major shareholder of UPP Holdings.

HSR is hopeful of winning more agents' hearts as the success of the new plan or its breakeven number of salespeople is between 2,000 and 2,500 based on its annual operating cost of S$5.4 million - a bulk of this is fixed cost which the firm plans to cut down in three years.

"This is not a difficult target. We once had 2,500 salespersons. There are over 30,000 of them in the industry.

"Now that we've done this, it's out there as an option for agents. I'm a strong believer in creative destruction," he adds, with unmistaken glee.