Exodus of the estate agents
Presenter: Giulietta Talevi - Guest(s): Herschel Jawitz
Summit TV speaks to Herschel Jawitz chief executive of Jawitz Properties about the poor state of the residential property markets that cant support the large numbers of those who got in when times were good
Giulietta Talevi: Welcome to Face to Face. A report out on Wednesday says over 55,000 estate agents have so far lost their jobs and more could follow - just how difficult is it out there at the moment? Herschel, would you agree that 55,000 jobs in the estate agency sector have been lost to date?
Herschel Jawitz: Im not specifically sure that 55,000 is the number but I have no doubt that we have seen tens of thousands of estate agents leaving the industry. Its also important to clarify that while certainly some agencies may have asked agents to leave I would probably say that the vast majority have left of their own accord simply because they cannot compete and do sales in this market. Even though interest rates are coming down and even though inflation seems to be under control we still have to run through this year so the number may approach 55,000 by the time 2009 is finished.
Giulietta Talevi: I get the impression that the growth in the number of estate agents was very rapid which would almost seem to indicate a boom and a bust cycle - would you agree with that?
Herschel Jawitz: Absolutely. If you go back to the late 1990s when interest rates were sitting at 23% to 24% there may have been in the region of 30,000 estate agents in the industry and about 9,500 to 10,000 agencies - that could range from your large corporates to your one-man bands operating out of their homes. At the peak of the market - lets say the end of 2007 beginning of 2008 - the number of estate agents had probably grown to about 75,000 and the number of agencies to close on 16,000 so weve seen a massive proliferation in the number of competitors in the market. Competition is good but the barriers to entry are low in our industry - unfortunately its easy come in with the good times and its easy go in the tough markets like now.
Giulietta Talevi: Will you see a lot of consolidation - perhaps not the one-man show businesses, but those that may have around five to 10 people that were running fairly well during the good times - do you think they will be incorporated into the more established estate agencies such as yourselves, or is there actually not enough business to go around for the number of agents out there?
Herschel Jawitz: Probably a combination of both. I just dont think there are enough sales to feed the number of mouths in the industry at the moment. We have definitely seen consolidation where the small agencies have merged or joined the larger agencies - thats perhaps joining a brand or a franchise network where there is the support, the technology training and the referral base. Thats probably still got a way to go
Giulietta Talevi: Talking about the state of the property market reports are that banks are refusing two-thirds of applications for home loans and requiring deposits up to 25% - so theyre really strict on their lending criteria and theyre being very restrictive with their capital - do you see that situation continuing for at least another year even if interest rates fall?
Herschel Jawitz: Yes. I dont think the situation right now is interest rate dependent - my sense of where the banks are now trying to manage their risk and their current book as best as they can. Weve seen the results of some of the banks recently where the impairments - their write-down, bad debts and property repossessions are growing at a fairly decent rate at the moment. The message the banks have sent out is right now theyre looking to maintain their current book, and theyre not particularly excited about attracting new business. I think they have a sense that all of the banks in South Africa certainly are in the same position with the same sort of attitude - so I dont think theres a fear of losing market share, and as a result lending criteria at the moment are extremely onerous. I dont see it easing up over the next six months, and by the end of the year probably the biggest single challenge to the recovery of the property market is going to be the banks willingness to lend.
Giulietta Talevi: If you look at the last property boom which really was extraordinary - that was a long time in the making. Do you think its going to be a long time before we see a similar boom to the years between say 2003 and 2008?
Herschel Jawitz: I think there we were playing a lot of catch up coming off a very low base - it was almost like the whole property market had to re-rate and correct itself after many years of slow and negative growth. I dont think we are going to see that same type of correction - its probably going to be a far more gradual recovery - but its important to remember that where property prices are going now and where they end up at the end of the year in real terms we are probably back to 2006 or 2007 levels in terms of property prices. So there is a lot of value to be had out there, and theres a large number of buyers waiting in the wings - a large number of people who have been forced out of this market will come back in at some stage but not any time soon.
Giulietta Talevi: It is good for some? You say there is value out there. Value has also been lost for people who bought at the top of the market. Do you think property prices might dip below those levels of 2006 or even 2005?
Herschel Jawitz: Its hard to say where the market is going. What you read in the paper is not pretty at the moment - certainly in the property market both in South Africa and globally. I dont think we are going to get down to 2005 levels - thats probably a pretty severe correction - but I certainly think that in real terms property prices are going to settle at 2006 or 2007 levels.