Patrick Grove aims to see property bought online within 3yrs in Malaysia
Institutional investors like the iProperty story, says HK stockbroker
PATRICK Grove, founder and chairman of Australian Securities Exchange (ASX) listed iProperty Group, has a plan in mind that will radically change the way the online property portal business functions – selling property online, as opposed to just helping buyers and sellers meet.
However, the plan will be hard to execute in Malaysia as it not only comes up against a real estate law established in 1981, but could be opposed by the real estate agents themselves, some of whom are already accusing iProperty of “biting the hand that feeds it.”
Between 30% and 35% of iProperty’s revenue in Malaysia comes from fees agents pay it to list their properties.
Meanwhile, a senior banker said, “Based on my experience selling mortgages to customers, this will prove very difficult to fly with buyers.
“I mean, you could even buy a car online because if you buy an Audi, you already would have test driven one and you know what you are getting. But that is not the case with property,” he told Digital News Asia (DNA), requesting anonymity.
Aside from the nature of property transactions, most of which are very much tactile and emotion-based, the banker questions if there is a need in the market for such an end-to-end service.
Yet, the more people question if this can be done, the more Grove will be determined to prove this expansion of iProperty’s business model can work.
Famous for copying existing Internet business models that work in the West and applying them in South-East Asia, Grove this time is not copying a model from the West. “In China, you can already buy property via the Internet, and it is that model that we are copying,” he told DNA.
A pilot is already running in Malaysia, the anchor for the five markets iProperty operates in, and whose success led Rupert Murdoch to make his first Internet-based investment in South-East Asia when he took a stake in iProperty last month.
REA Group, an affiliate of Murdoch’s News Corp, acquired a 17.22% stake in iProperty for US$100 million. REA, also listed on the ASX, bought the stake from SeLoger.com SA, a unit of German media group Axel Springer and operator of France's biggest property classifieds portal.
Shedding some background on the deal, Grove (pic) said that some executives from REA came to look at iProperty’s business in Malaysia and, according to Grove, declared that, “If you do this right, iProperty can be bigger than REA.”
They felt the upside was enormous, claimed Grove, since iProperty operates in the emerging markets of Malaysia, Indonesia and Thailand.
That was the trigger for the Murdoch investment, with Grove having to personally make the pitch to the Australian-born media tycoon at his New York office to clinch the deal.
For iProperty’s move to sell property online, regulation may be the main hurdle. The Malaysian Institute of Estate Agents (MIEA) president Siva Shanker, on hearing of Grove’s plan, told DNA, “Either way, there could be laws broken.”
Grove however assured that while he envisions property being bought online, the final transaction and all relevant paperwork will be executed through registered estate agents or registered property negotiators.
The specific regulation that Siva referred to above is Section 22C(1)(d) of the Valuers, Appraisers & Estate Agency Act 1981, which reads:
No person shall unless he is a registered estate agent and has been issued with an authority to practise under Section 16 – be entitled to recover in any court any fees, charges or remuneration for any professional advice or services rendered as an estate agent.
And, secondly, said person must also show that he practises as a sole proprietor... a partner... a shareholder or director ... or as an employee of such sole proprietorship, partnership or body corporate.
Siva’s contention is that iProperty is not a registered real estate agency.
As of press time, the Board of Valuers, Appraisers & Estate Agents had not responded to questions DNA had posed on this issue.
If the situation looks a bit unclear at the moment, it certainly has not clouded the picture for iProperty’s institutional buyers, who are positive on its long-term prospects and look to the growth of REA in Australia as a barometer.
According to Chris Brice (pic), managing director of Bell Potter Securities (HK) Limited, iProperty’s institutional investors are quite bullish on the future of the South-East Asian and Hong Kong focused property portal, more so when compared with REA.
“Six years ago REA had a market cap (capitalisation) of around A$500 million (US$466.3 million) but today it is A$6.4 billion (US$6 billion),” he told DNA from Hong Kong in a phone interview.
Brice pointed out that investors do see similarities between the two companies, and view everything about iProperty positively.
“They expect iProperty to maintain its market leadership in Malaysia and Hong Kong with this eventually translating to meaningful long-term valuation,” he added.
Indeed, Grove told DNA that he also draws parallels between the REA story and iProperty, but with the emphasis on how much upside iProperty has.
And while DNA wrote last week about iProperty’s financial performance in the first half of 2014, Brice said that the institutional investors are not too concerned about the six-month performance as they look towards a long-term pay-off.
“If they execute Malaysia brilliantly well and get Hong Kong right too, with Indonesia as a bonus as that market is recognised as a really long-term play, then investors are confident of a payback,” he said.
Slipping in Singapore
However, Brice was curious to know what lessons iPropery had picked up from the loss of its market leadership position in Singapore.
Grove claimed that the mistake iProperty made in Singapore was to keep the original founders of the property portal that was bought in 2007. These founders promptly lost the market leadership within 15 months.
They were then replaced but the damage had been done and iProperty has not recovered in Singapore, he argued.
But Grove shared an interesting point about the Singapore market in general: That in the scheme of a South-East Asian play, Singapore is not considered important by large investors.
“In all our new business plans [for parent company Catcha Group’s various online businesses], we have taken Singapore out,” he said.
“Why spend all that time, money and effort to fight over a market of five million. I would rather spend half the money to fight for the Malaysian or Indonesian markets,” he added.
While Grove dismisses Singapore from his business model, he still has a 30-strong team there, though he did cut between 10 to 12 jobs early last year and another 10-12 jobs were transferred to the Philippines and Malaysia.
He said he expects to lose US$500,000 this year, but to then make profits of between US$200,000 and US$300,000 next year.
And Hong Kong still remains a key market for iProperty, with Grove projecting it will be profitable by the second quarter of 2014.
When asked about this contradiction in his avowed strategy of not putting in resources into small markets, Grove said out that Hong Kong enjoys a steroid dose from Chinese buyers in its market, which helps push up transaction volumes.
“The amount of Chinese property-buying in Hong Kong is insane,” he quipped.
Advertising fee, not commission
Meanwhile, in Malaysia, even before Grove’s plan to sell properties online, iProperty had gone in the opposite direction – getting developers to allocate units to it from which it would then take a commission from the sale.
This looks like iProperty is being a broker, but he denied this and called the fee it collects from developers “an advertising fee.”
But MIEA president Siva (pic) is not buying this. “In this case, any illegal broker can sell property and then call the commission he collects an ‘advertising fee’.”
Be that as it may, the fact that iProperty concludes sales through a registered real estate agent has attracted the interest of some of these agents.
“I would partner with them,” declared one. “They have the relationship with developers, the resources and access to buyers.”
Because it is very early days, how this expansion of iProperty’s business model plays out is not clear, but for sure investors will be looking to see if it gains traction in Malaysia. That will give them the confidence that Grove has made the right bet again.
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