Biggest property agencies holding up in cheerless market

Singapore

SINGAPORE'S largest real estate agencies appear to be weathering the dismal market better than their smaller counterparts.

While the smaller firms sank into the red last year, those larger in size managed to stay above water by cutting costs, streamlining operations or focusing on higher-margin deals.

These moves have helped them to clock in average profit margins of 4 to 5 per cent, and even raise their earnings for the year.

Despite a revenue drop for the year ended Dec 31, ERA Realty and PropNex - the two largest agencies by agent force - reported a 10.6 per cent and 3.8 per cent rise in profit after tax to S$11.5 million and S$6.3 million respectively.

Citing economies of scale, these agencies note that their ability to generate activities to stimulate sales and support their agents with value-added services is hard to be replicated by the small and mid-sized agencies.

"When you don't have scale, your compliance and overheads will kill you," said ERA Realty chief executive Jack Chua, pointing to some mid-sized agencies that failed to tuck in a profit.

While revenue at ERA slipped 9.9 per cent to S$214 million last year, its profit was propped up by higher-margin investment sales and commercial transactions even as the firm kept up with its training and technology offerings to agents.

PropNex chief executive Mohamed Ismail explained that while PropNex's revenue dipped 2 per cent to S$194.8 million in 2014, the group streamlined its processes and upgraded its software for the back-office, which allows the firm to cut headcount by about 5 per cent. Still, the S$7.9 million of profit shared with team managers and leaders was similar to 2013's. During the year, it spent close to half a million dollars in training to improve agents' productivity.

But the picture was not so rosy at OrangeTee, even though it's the fourth largest agency here. It recorded a net loss of over S$690,000 for the year ended June 30, 2014, after scoring a net profit of S$3.9 million the year before. Meanwhile, there is no sign of a turnaround for HSR International - ranked seventh by number of agents - which inked a net loss of S$5.2 million in fiscal 2014 ended Dec 31, after a S$5.4 million loss in 2013.

Steven Tan, managing director at OrangeTee, attributed his agency's FY2014 net loss to the decision to push ahead with a S$1 million "business stimulus package" to beef up areas like branding, training, project marketing and research. The firm also lowered training fees to help agents through the rough patch despite the agency's 38.6 per cent slump in revenue to S$69.9 million in fiscal 2014.

SLP's agency business under SLP Realty and SLP Scotia saw revenue surge 66 per cent to S$32.3 million for the fiscal year ended May 31, 2014 on the back of higher commissions offered by developers; but as most of these commissions went to the property agents, its net profit slumped 98.6 per cent to S$7,295 from S$533,921 as it incurred higher operating expenses for newly formed SLP Scotia.

With the current commission structure heavily skewed towards greater commissions payout to the sales agents, a small and medium-sized agency will find it tough to make ends meet, PropNex's Mr Ismail observed.

"As such, only the mega or bigger agencies can make some profits," he said. "Looks like in Singapore, there is only room for two or three or at best four big agencies to make any meaningful business with our existing commission-sharing scheme."

Agents typically take home some 70-90 per cent of the commissions clocked. In the case of new project launches however, an agency may take a first cut of 30-50 per cent on the commission before splitting the balance with the agent. For relaunched projects, the developer offering a higher commission may dictate a larger split for agents.

There are "over-riding" fees that agencies pay to the team managers and leaders for the commissions earned by their sales agents, said Tan Tee Khoon, executive director of Knight Frank. "Meanwhile, the fixed costs of running the agency business such as office rent and staff salaries have not plummeted."

But Mr Tan conceded that the incomes of most property agents have also been affected by the market slump. "We certainly have to review how we do business and seek innovative solutions to reduce business costs, as well as initiatives to increase revenue."

Already, a major consolidation is underway among some agencies. Australia-listed Global Property Strategic Alliance (GPS Alliance), which now has close to 480 registered agents, on Friday confirmed a BT report that it is in discussions with other real estate agencies in Singapore to form a joint venture with its agency business.

Mr Ismail pointed out that the bigger agencies have the benefit of having their own legal and compliance teams to cope with increased compliance requirements, and buying advertisements and printing services in bulk with discounts.

Last year, over 50 agencies closed shop and close to 4,000 real estate agents dropped out of the industry. As of Jan 1, there were 1,369 licensed agencies and 30,830 registered salespersons with the Council of Estate Agencies. Close to 80 per cent of these salespersons are with the 10 biggest agencies here.

Agents are apparently moving from the smaller agencies to the larger firms, with the number of registered agents with the top five agencies here increasing in the past one year. ERA, PropNex and Huttons saw their number of registered agents continue to rise this year to 5,975, 5,667 and 3,257 respectively. OrangeTee's agent strength also increased from 1,850 registered salespersons at the start of the year to 1,950 currently.

But the outlook for real estate agencies this year remain mixed. PropNex's Mr Ismail said the agency's transactions have risen by 17.5 per cent given an increase in market share, greater productivity and investors slowly creeping back.

OrangeTee's Mr Tan also said his agency is "starting to see better prospects in terms of the number of projects already secured for next one year", including new launches in the pipeline and deals stemming from its partnership with Tokyu Livable Inc, which took up a 22.5 per cent stake in OrangeTee.

Some smaller agencies are less sanguine.

Sieow Teak Hwa, founder and managing director of boutique realty Teakhwa Real Estate, told BT that net profit for the firm this year is half of that last year. The agency of 40 property agents is seeking out residential projects that are not fully sold where developers are paying a higher agency commission - often in the range of 3-5 per cent compared to the typical 1 per cent or less for new launches.

"It's tougher for agencies that are not doing (developers') projects as the resale market has been hit and the rental market is also down," Mr Sieow said. "I think many agencies are not doing as well unless they can find a niche."

International Property Advisor, which has 11 agents, is developing a niche in marketing properties in Japan and Indonesia by leveraging on the global franchise of Century 21, said its key executive officer Ku Swee Yong, also CEO of Century 21 Singapore. This has helped the agency stay afloat so far, he said.