Safe as Houses?

With the economy showing a slow recovery and the interest rate remaining low, is property still a risky sector to invest in?


Safe as Houses?

A decade ago, if you were talking about real estate, most people would have agreed that investing in property was bulletproof. But, if you made that statement these days – following the harsh global recession, and people losing their homes and jobs – you could stir up a nasty reaction.

According to Raal Nordin, franchisor and chief executive officer of Only Rentals, the market is over the worst. “The brands that are still in business today have proven their strength and will be geared to accept the active market in a fruitful manner,” he says. Nordin adds that activity in the market will pick up pace towards the second half of the year.

Thabiso Ramasike, Standard Banks’s head of Franchising, says: “While the sector is operating in a sluggish market, top property brands should be able to ride the wave and be ready when there is an upswing in the market.” He adds that strong estate agencies should continue attracting discerning buyers and sellers. “Their brand equity is likely to count for more in this economic environment.”

Huizemark MD, Bryan Biehler, predicts that in the near future small operators will join bigger brands or buy franchises as the new operational requirements will hamper individual ownership. “Brand recognition plays an important role in procuring clients,” he says.

The State of the Industry

According to the South African Property Report compiled by the Institute of Estate Agents of South Africa, the property profession has continued to shrink and now has around 32 000 estate agents, working through 8 632 firms. The report states that the majority of firms are small or micro enterprises. Most of the large firms consist of individually-owned franchises, linked to franchisors that provide brand identity, marketing, training and other resources.

The property profession is regulated by the Estate Agency Affairs Board (EAAB) in terms of the Estate Agency Affairs Act 1976. By law, every estate agent and estate agency firm which operates in South Africa must be registered with the EAAB. Registration is subject to annual renewal. An estate agent who collects rentals must also register as a debt collector with the Council for Debt Collectors.

Franchising and Property

Ramasike believes the franchising model is suitable for the property sector. “Property requires a certain type of understanding of how to sell, of client needs, and of locations and trends. Franchisors can provide that type of expertise and support,” he explains.

Furthermore Ramasike says potential property buyers and sellers also need to feel assured that they are dealing with a reputable firm. He says the value of property transactions means that there can’t be room for uncertainties or risks with unknown role players. “The franchising model in the property sector also allows for set standards and codes of practice that are for the benefit of both sellers and buyers.”

According to Nordin, the property sector does more than just offer opportunities. “It is driven by entrepreneurs, and most well-known brands are dominated by multiple franchise owners.” He also says the cost to enter is reasonable, making ownership affordable.

Before You Buy

“Any potential franchisee in the property sector would be wise to first get a full understanding of the different brands, the locations that are available to be bought into, and the prognosis on the overall property market,” says Ramasike.

As with any franchise, doing the necessary research before you invest in the business is vital. Franchisees considering the property market should ensure that they go with a brand that is reliable and trusted by the public. “The market is tough, so easy pickings are not in abundance. We are however optimistic about the market and opportunities it presents,” says Ramasike.

Standard Bank, he says, understands that not all brands operate at the same level. He points out that there are three types of property brands:

  • New players and those that only operate at the local level
  • Regional brands that do not have national representation, but are recognised
  • Brands that are represented at a national level and sometimes internationaly

 

“Potential franchisees will have to make a decision based on where they understand the brands to be operating. Consideration of the start-up costs required in setting up a franchise would also be a factor,” explains Ramasike. He says that one of the biggest challenges for the franchisees in the property space is a lack of consistent cash flow. “They would need access to bridging funding, as the sale of properties is not easily predictable, and even when the sale has been made, the turnaround times are often long and can cripple even the best of sales people.”

What You Need

This sentiment is echoed by Nordin. He says franchisees need to have the capital to enter the venture initially and to carry themselves for at least the first year. “Property is a competitive market, and although there is room for new entrants into the market, it takes time, energy and focus to get the brand established in a new area,” he adds.

In terms of the right skills and personality traits to successfully run a property franchise, Nordin says the biggest asset is to be an honest, people’s person who will focus on service before money. “Ethics come first in real estate. Somebody with great marketing ideas will be the bonus. But most known brands offer great marketing platforms already,” he says.

Nordin says that previous experience in the property sector is not necessary. “All training by the big brands is included in your franchise fee. We also provide ongoing training and newly legislated Acts are implemented in bigger brands as well as accurate compliant sales or lease documents.”

According to Biehler, a franchisee needs real estate experience to run a successful franchise. “Formal classroom style training or academic qualifications alone will not determine success because of the nature of the business. Proficiency in real estate depends on the principal’s ability to understand the fluctuating market conditions, clients’ needs, and the practical implications of legislation – and that comes from years of working in the field.”

The Amendment to the Estate Agency Affairs Act that came into effect on 15 July 2008 makes it impossible to register as a business owner unless a minimum standard of education and practical experience in the field has been obtained first. Biehler says new applicants must be aware of exactly what these requirements are and be careful not to fall prey to unscrupulous franchisors who will sell them a franchise at any cost just to find that the EAAB prohibits them from trading and employing agents.

“An estate agent is already in business for himself and is used to sporadic income and must possess basic business acumen to be successful as an agent. A natural progression for such a person is to become a business owner or franchisee. However, it is not easy for a person who has no real estate experience to enter this sector,” he concludes.

Get Connected

The advances made in technology have changed the face of businesses in all sectors over the last few years, and the housing market is no exception. According to NOWLETTING, people looking to rent or buy properties are more often than not turning to the Internet from the comfort of their own homes. Statistically, less than 5% of modern day sellers, purchasers, landlords or tenants are reportedly setting foot inside a traditional estate agency office.

New Features

As a result of the shift from the office to the Internet, the way properties are advertised for sale or rent has changed. Strong Internet presence with extra details such as floor plans and 360 degree photography is becoming increasingly important and has more impact than the traditional static photograph in an agent’s window or local newspaper.

The Internet has become a 24 hour, seven days a week shop window with the majority of enquiries coming directly off the website and via well established property portals.

Franchise Zone
About the Author
Franchise Zone is published by Entrepreneur Media SA. It offers advice and franchising opportunities in South Africa.

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