WITH the South African residential property market cooling down in recent months, real estate agents will have to start getting used to a tighter market.

Although the well-known, larger real estate brands are expected to survive more difficult times, some newcomers are expected to be squeezed out of the market.

Another concern is that emerging black estate agents, who do not necessarily have the resources of the established estate agency groups, may struggle in this market.

In May last year the Estate Agency Affairs Board said there were 43000 estate agents in more than 11000 firms and other organisations registered with it. Some commentators said even then there might be an oversupply of agents.

Herschel Jawitz, CE of Jawitz Properties, says that larger organisations and the niche real estate operators are better equipped to survive tougher times.

Jawitz says small niche players sell in a small area and may operate in a small home office environment.

“Overheads are very low and the owners rely on their network in the local community as well as creating the niche in one or two suburbs.

“As a result these agencies can compete on the basis of price by cutting commission.”

Large agencies are also able to survive a downturn as they “have a large infrastructure and are able to invest resources into training, technology and marketing in an effort to differentiate themselves from the competition and to better service their clients”, says Jawitz.

But, he says, while the booming property market has helped medium agencies to grow, they now face the challenge of managing a large staff, competing against both niche players and the larger organisations as well as higher overheads.

As the market tightens a number of factors come into play which affect the future growth and survival of these companies.

These include the ability to differentiate services, as there are fewer buyers in the market. “Technology such as good websites will play a key role as it is a less costly and more efficient way to market to both sellers and buyers,” says Jawitz.

He says in slower markets there is often a kneejerk reaction to cut costs, especially on marketing and advertising. “This may only worsen the situation for the agency as it reduces their ability to attract new clients as their visibility drops.”

Jawitz says that as sales slow, cash flow can become a challenge, especially as the lead time from date of sale to transfer is about 95 days.

He also says that in a slowing market with fewer buyers, price competition may become less prevalent as the ratio of income to expenditure tightens.

He says that as a result of all these factors you could expect the larger organisations to be able to increase market share in a slowing market. But he says this will take time. He says niche operators will still hold a low-cost base advantage but will have to compete harder in a shrinking pool of sales.

Jawitz says black-owned agencies operating in previously disadvantaged communities face some unique challenges.

These include funding for their companies and their buyers, as well as issues such as education about home ownership and the challenge of establishing a viable secondary market. Jawitz says the markets in previously disadvantaged areas have shown less price growth over the past five years than the established areas and should be far less affected by a market slowdown.

Estate Agency Affairs Board CEO Nomonde Mapetla says they do not believe a cooling off in the market would have an immediate impact on the estate agents registered with them. “Everyone is talking the market down because of inflationary pressure on it right now,” she says.

Mapetla says the property industry is expanding with the 2010 Soccer World Cup on the horizon, as well as the fact that government has a housing plan in place and external investments are coming into the country. All these developments will keep the residential property market afloat and there will be opportunities for the emerging new estate agents, she says.

Mapetla was also not too concerned about the increase in the number of estate agents. About 33% of estate agents fall by the wayside annually in any case. Although about 65000 estate agents are currently on the board’s books there would be about 40000 come the end of the year, says Mapetla.

Between 1994 and now the number of estate agents has only increased 3000, Mapetla says.

Article ftom: www.businessday.co.za