Sanjeev Choudhary, 35, says the fight is over. At least for the next six months. “I have secured the sole selling rights for some projects from developers I work for,” says Choudhary, owner of Aureole Realtors Pvt. Ltd.
He no longer has to worry about sharing his selling commissions with rivals in a market that is slowing, but Choudhary’s task has only just begun.
Choudhary has six months to sell about 120 flats. At stake is a higher commission—as much as two percentage points more in a market where the fee ranges from 1% to 6%.
As a sole selling agent, Choudhary will be responsible for selling the entire project, which means he can set the ground rules on how he wants to do it and will not be undercut by competing agents.
Caught in the real estate slump, smaller builders are shifting their marketing strategy to try and fully sell out their projects. In a market where three years of inexpensive home loans and rising property values created untiring demand for homes, the traditional formula was easy—using basic sales staff or give an open listing of their property to multiple agents and advertise in newspapers.
But with interest rates on home loans rising from 7.75% in 2005 to 11.50% in 2007, and near-unaffordable home prices, buyers are crawling away and smaller developers are hoping that granting sole marketing rights to a single agent will ensure more personalized and targeted marketing.
Recently, realty portal Jaaydaad.com was appointed as a sole selling agent by real estate developer Triveni Infrastructure Ltd for its Triveni Heights project near Indirapuram in the National Capital Region. The company has been appointed as the sole marketing agent for selling the first phase of the project, which has about 1,200 flats.
“We want to focus more on developing quality projects. For that, we need a specialized marketing agency,” said Sunil Mittal, chairman and managing director, Triveni Infrastructure. “This trend is quite popular in developed nations.”
While property consultants, such as Jones Lang LaSalle Meghraj have been marketing commercial properties on an exclusive basis, this trend is now picking up in the residential?space,?too.?The way it works is, after a developer grants sole marketing rights to an agent, the agent becomes responsible for the complete marketing of the project right from publishing brochures to showing the property to the client. The agent’s commission that the agent receives will be based on the sale of property.
“I think sole marketing will work best for smaller developers who do not have the marketing personnel or the expertise needed to sell the project,” said Vivek Menon, head, marketing and communications, Jones Lang LaSalle Meghraj. “Large developers usually have their own marketing team.”
Jaayadaad.com , though not a conventional real estate agent, is leveraging on its franchisee and dealer network to market projects.
Sole marketing works to the advantage of small developers, as agents sometimes underwrite a portion of the project to show their commitment to the developer. “See, a developer needs a guarantee from the agent that he will sell the project,” said Arvind Parekh, chief financial officer, Omaxe Ltd. “Until he has that, he can’t give the agent sole marketing rights.”
Typically, an agent underwrites 10% of the project during the pre-launch period. This helps cash starved developers who can meet their funding requirements for projects through this. If an agent underwrites 10 out of 100 flats, which cost Rs10 lakh each, then selling those flats will earn him a commission of Rs60 lakh (at 6% commission), though underwriting will cost him Rs1 crore.
But not all agents underwrite projects. A sole selling agent ends up spending at least 20% of the profit on marketing cost.
But this marketing cost is very little when compared with the profits, said Deepak Kohli, managing director of Deep Realtors, a real estate consultancy firm. Agents can book higher profits from sole marketing, as the agent can price the property at a higher rate than what he bought from the developer. “An agent can sometimes get as much as 10% margin on the property sold. So, he earns in addition to the commission he gets,” Kohli said.
The move towards sole marketing is a clear sign of a crunch in the housing sector, said Kamal Rastogi, marketing consultant to Triveni Infrastructure. “When the market is really strong and developers find buyers easily, they don’t need professional marketing agents,” he said. “But as the market has become more competitive, builders are putting more emphasis on working with real estate agents.”
But Kohli thinks developers are entering into sole marketing agreements to keep prices up. “It is a means for artificially pushing up prices. While the developer sells the project at a certain price to the agent, he can later always increase the price,” Kohli said.
According to Parekh, “the process of exclusive agents has started now because now there are actual users in the market and not speculative investors.”
Other realty portals such as Indiaproperties.com are also looking at becoming sole marketing agents. But some builders such as Parsvnath are not comfortable about appointing a single agent, saying they don’t want to put all their eggs in one basket.