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May, 13 2010

REAL ESTATE BROKERAGE BULLISH AGAIN

The worst seems to be over for the real estate market across the world. With firms once again set to explore foreign shores and investors cushioning up against the long-drawn bearish phase, the international realty industry is gearing up for some big grow

The worst seems to be over for the real estate market across the world. With firms once again set to explore foreign shores and investors cushioning up against the long-drawn bearish phase, the international realty industry is gearing up for some big growth.

THE roller-coaster market ride of the international real estate industry is easing out to a smoother stretch ahead. Observed as a lucrative money-spinner for investors and brokers, the downturn brought along with it a subsequent dip, denting the growth prospects of the industry worldwide and affecting one and all associated with it.

However, the encouraging first quarter reports and growth in the GDP in the developed countries have created a growth bubble across most of the international real estate markets. Big players in the real estate industry are also upbeat about it. “There seems to be an upturn in the property markets worldwide, underlining the importance of real estate in the long run as a secure and stable investment,” states Christian Völkers, CEO and Founder, Engel & Völkers.

Sharing similar thoughts, Dave Liniger, Chairman and Co-Founder of RE/MAX International Inc., says, “It looks like we are through the worst of this downturn and 2010 should produce better results than 2009.”

Yet the approach is mostly that of a cautious optimism, secured by the motive of 'spread and extend' into emerging markets of the world.

Brokerage leads the way

Marked presence of the brokerage services in the real estate industry internationally has added to the growth, besides fielding in prospects of subsequent employment. Today, both foreign real estate firms and local players are having a share in the real estate pie across the world, courtesy the brokerage industry.

The real estate and construction sectors combined make one of the largest business segments in the US economy. The US real estate industry generates around $ 160 billion annual revenue and includes 2.2 lakh companies, which engage more than 4 million real estate brokers.

“The US housing market is very mature, yet it is the secondary resale market that makes up approximately 85 per cent of all the housing sales,” states Graham Badun, Managing Partner and CEO, Brookfield Resid-ential Property Services, (RPS), US.

With brokerage services playing a pertinent role in generating revenue for the real estate market, the role of brokers and sales agents comes under the purview prominently. A projection data prepared by the National Employment Matrix, US, confirms the growth in the number of real estate brokers in the country since 2008. The report predicts a significant rise in the number of real estate brokers and sales agents from over 5.17 lakh in 2008 to over 5.92 lakh in 2018, which means a rise of 14 per cent. The Obama administration has also been effective in encouraging potential buyers through the 'First Time Home Buyer Stimulus Package', besides extending credit for the same. It is believed that this step, if successful, will bring about reduction in the current stock of unsold homes and eventually help in reloading the real estate industry coffers for one and all associated with it.

Getting real(ly) big

Brokerage is the most preferred services in the US, a fact confirmed by the 'Investment and Vacation Home Buyers Survey 2010'. For the purpose of buying primary residences, a whooping majority of 69 per cent potential home buyers responded positively to their preference for real estate agents and brokers.

Liniger in this aspect comments, “Our market has had the advantage of developing and refining itself over many years. In particular the Multiple Listing System or MLS that all our major cities now use provides a great service to real estate agents and has been duplicated in many countries.”

The real estate brokerage market in countries like Germany is gathering momentum with big real estate players like Engel & Völkers.

Stating plans of expansion across unexplored pastures of Europe and abroad, Völkers says, “We are present in 34 countries around the globe but at the moment our priority is Germany and the rest of Europe.”

“Our markets are now very stable with signs of growth expected over the next 12-18 months. Return of the market strength has been gradual, which, in turn, should encourage a far longer sustained positive cycle,” states Aaron Hodson, Head of International, Harcourts International Ltd, Australia.

Coming to the east, the Asian economy is already bullish with China gaining ground in terms of GDP and India closely covering the ground after the former. A marked 10.7 per cent increase in residential and commercial property prices marks the beginning of a challenging phase ahead, both for the local real estate brokers, agents as well as major international firms eyeing the Chinese real estate market.

In India, the real estate sector is second only to agriculture in terms of employment generation. It contributes heavily towards the Gross Domestic Product (GDP). Even though the brokerage services in the real estate industry are yet to be organised, the presence of several international real estate firms is adding up to the momentum, increasing opportunities for both real estate brokers as well as franchises.

Says Sam Chopra, CMD, RE/MAX India, “In the next five years, we aim to appoint master regional franchisees in all 32 regions, at least 1,000 broker offices and a chain of 10,000 brokers across India.” Liniger emphasises, “India has a great future ahead in real estate.”

Major players gaining ground

The real estate brokerage industry has seen the rise of several real estate giants in the US and across the globe. In the US, the presence of prominent realty brokerage companies like GMAC Real Estate, Realogy Corporation, RE/MAX, Coldwell Banker, CENTURY 21 Real Estate LLC, Better Homes and Gardens Real Estate, Brookfield Residential Property Services and Keller Williams Realty has facilitated growth and development in the brokerage services, making realty sector one of the major industries in the US and overseas.

Vast real estate market

The real estate brokerage market internationally is vast and diverse. While core markets like the US, Germany and the UK are much more organised and mature, emerging markets of India, China and Brazil still have a long way to go.

Commenting on the Indian realty market, Badun says, “India is in the early stages of developing a broader housing supply for its citizens with their increased wealth and disposable income. There will be opportunities to 'trade up' as more Indian consumers experience home ownership and build equity in their homes.” Analysing the Indian realty market with that of Australia, Hodson comments, “The main difference lies in the legal governing aspect behind the process of transaction and how the actions of the brokers are overseen to ensure the security of the purchaser or seller.”

Franchising for expansion

In the real estate brokerage industry, franchising is seen as the most sought after business model, as it involves leasing of national business trademarks, established through advertising, to both global and local affiliates. One of the major advantages of franchising is that it allows people with limited capital to enter an established business. It is also well suited to a developing economy. “Franchising is an ideal model for real estate brokerage. What we have found in North America is that real estate is a local, neighbourhood-based business,” says Badun.

So, is franchising turning out to be the most preferred business model in real estate?

Yes, says Hodson. “In Australia and New Zealand, franchise offices make up for over 70 per cent of the real estate offices across the country.” Some of the big names in the US real estate market have now expanded across the globe through franchising. GMAC Real Estate has expanded the business worldwide and is looking for master franchisors along with its partner Brookfield RPS, who is seeking an entry into India for its global relocation services.

So what are the prerequisites for a franchisee in the real estate industry? Badun avers, “Our job is to provide technology, services and access to a community of like-minded business people who can share best practices from different markets to help the franchisee make more money.”

The 'Franchise Business Economic Outlook 2010' by PwC shows a sustainable growth and predicts a boom in the real estate franchise services sectors across the world. Between 2008 and 2009, PwC estimated a positive growth in the real estate franchise establishments. In 2010, an overall projected rise of 3 per cent is expected in the franchise format business model in the real estate industry.

Franchising has turned out to be a huge success in the real estate brokerage market of China. In 2004, an average growth of 75.48 per cent in the number of franchisors was recorded. This number doubled up in the last few years, proving the obvious.

Sensing the huge potential of the format, major firms have geared up for greener pastures. Hodson says his firm plans to enter the Indian market soon. “We have shifted our focus to the Indian market after considerable research and development. The main reason for this are the strength of the economy, business culture and our value proposition as a real estate franchise, which is better than anything available in the current Indian market,” he adds. Liniger in this aspect says, “It seems the franchising concept is starting to catch on in India and there is a lot of growth in this area.  Franchising offers the value of consistent quality. While franchising may be a new concept in the real estate sector in India, people are beginning to recognise the significance of a quality brand.”

So how does an international firm seek franchisees abroad?

“We deliver complete localised offering, a considerable investment for our group,” says Hodson. Echoing similar sentiments, Badun, whose firm is all set to tap the Indian relocation services sector, says, “We are in an exploratory phase for other opportunities in real estate and appraisal services. We will modify our franchise model, which has been successful in North America, to accommodate the unique aspects of the Indian markets.” According to Liniger, “We have a comprehensive selection process and take great care in choosing the countries where we expand.  We recognise that each country has different laws, language, history and business culture. We also take a very close look at the overall marketplace with thorough market studies.”

Optimism after slowdown

Even though the slump had hit the pace of progress in the past one year, optimism prevails among the international brokerage fraternity. International firms are once again gearing up for overseas expansion, encouraging franchisees, entrepreneurs and brokers to cash in on the opportunities available in the best possible manner.

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