A big win for estate agents in South Africa’s property portal landscape

update 31 July 2023: Final report published that addressed all the points below

Well almost! South Africa’s Competition Commission (CC) has published a comprehensive report outlining provisional findings and recommendations of its Online Intermediation Platforms Market Inquiry. It’s open for discussion with the final report to be published in November 2022.

In short, I feel they’ve done an excellent job to investigate and address all the concerns that was raised by me and others. While the CC investigated different industries, I’ve summarised the key findings and recommendations related to real estate for you:

1. Inbound fees

Inbound fees that are charged by Property24 and Private Property to estate agencies to accept feeds from external listing feed platforms to be removed; A current fee of R500/month per office is charged.

This has been a thorn in our and other service providers’ sides switching clients or onboarding new agencies as some are reluctant to pay the extra fees. I welcome the recommendation and believe it will give agents more freedom to choose a listing platform of choice without being penalised.

2. Access to listings

Leading listing syndication providers must operate with 3rd party platforms to supply listings on request by business users for no fee.

As a property portal, you’ve lost 50% of the battle if you don’t have access to all the listings. This explains platforms holding on to their listing data at all cost. I welcome the recommendation from the CC to remove these ringfenced data islands and promote a level playing field. Portal owners, rejoice!

3. Portal contracts

Portal contracts with estate agents should permit termination of one month’s notice.

This is a no-brainer. We’ve had this motto from the start as I believe you need to create enough value in your products to not hold your client’s ransom if they choose to leave. I’d like to see this extended to any real estate platform as we’ve experienced countless issues with estate agents wanting to move but are bound by complicated long-term contracts.

4. No exclusivity between industry organisations and online platforms

The Competition Commission recommends the divestiture of the large real estate companies in the Estate Agents Property Portal Company from Private Property.

REBOSA (or any other organisations) should also refrain from coordinating commercial conduct by its members, such as the investment or partnering with specific intermediation platforms including portals which is likely to constitute prohibited conduct under section 4 of the Act.

Ouch. This is something I’ve objected in 2017 through the same Competition Commission with the takeover bid of Private Property by Caxton Media, Bond Originators and large real estate companies. In short I felt that it was not inclusive enough, would empower another listed company with a majority share, and kill innovation in the space. I’ve failed at the time.

Full circle and the damage has been done. In the process, we’ve lost time to empower promising portals and eager entrepreneurs with the chance to challenge the status quo. Luckily the CC has now identified this as a major stumbling block and we have time to untangle this conglomerate (pending final recommendations) and move forward.

I think REBOSA & EAPPC misjudged the downstream impact of this move with its exclusive partnership and shareholding with Private Property. However good intensions there may have been, they could have lowered the risk of relying on only one company to ‘save the industry’ and create a more competitive and inclusive portal landscape. This has also been highlighted by the Commission:

This arrangement currently undermines platform competition through depriving new platforms of support from the largest agencies outside the two incumbent platforms, and stifles innovation by doggedly picking one champion to challenge Property24.

In many occasions, money was thrown in our faces as key success factor for a portal to succeed, and REBOSA downplayed the chance of anyone else making an impact (through various press releases noted by the CC). In contrast, I believe key success factors in the portal space revolves around having a well designed platform, access to all the listing data, and the right team that can drive innovation at a relentless pace. Money will always be the cherry on top if you want to make things work, but hey, that’s my view.

The position for the #2 portal in South Africa is wide open, and if the Competition Commission succeeds in breaking down the walls, it will ultimately be a win for agents and consumers.

Extracts: Recommendations

Summarised real estate related extracts from the report.

132. The Inquiry makes the following provisional findings in respect of online classified platforms:

132.1. The lack of interoperability of the listing engine software of the leading property classifieds with third party platforms denies these platforms property listings, and in so doing impedes platform competition;

132.2. The levy of a R500 fee on listings sourced from third party listing engines, which may be the product of collusive conduct, inhibits estate agents switching, strengthening the harm from a lack of interoperability and impeding entry of listing engine providers into property classifieds;

132.3. The shareholding of large estate agents in Private Property through the EAPPC, and the partnership with Rebosa, incentivises continued use of Private Property and impedes third party platforms from securing support and listings from the large agents;

132.4. Multi-year contracts concluded by Property24 incentivise continued use of Property24 and crowd out support for competing platforms.

133. The Inquiry is of the view that the ensuring interoperability is essential to ensure new platforms get access to listings and is achievable since other listing engines have achieved the same. It should not be costly to implement and could be provided with a short period to make the required changes. The fact that one of the platforms has already indicated it is dropping the R500 fee for incoming listing feeds reflects an acknowledgement that this must go. In terms of the conflicts of interest, the Inquiry is of the provisional view that divestiture of the EAPPC seems necessary to remove the lock in and incentives to locate support in Private Property by the large agencies. The Inquiry does not believe that simply removing directors would achieve that purpose as it still does not change incentives but welcomes submissions in this regard. The Inquiry is also of the view that Rebosa’s actions in driving support for a single platform constitutes a prohibited practice under section 4 and should be prosecuted should it not put in place guarantees that provide comfort that such conduct will cease. Prosecution and an administrative penalty on all its members collective revenue would otherwise create the correct incentives not to engage in the conduct.

134. The Inquiry therefore calls for inputs on the following provisional remedies in respect of leading online classified platforms:

134.1. The removal and prohibition on leading classified platforms charging a fee for an incoming listing feed from agents or dealers using third party listing engines, alternatively the Commission to investigate for potential collusive conduct;

134.2. Leading listing engine suppliers or vertically integrated platforms must interoperate with third party platforms to supply listings on request by business users for no fee;

134.3. Contracts with business users should permit termination on one month’s notice and may not incentivise or bind the business user to contract for a multi-year period, including through the provision of additional benefits;

134.4. The divestiture of the large estate agents through the Estate Agents Property Portal Company from Private Property; and

134.5. Industry organisations such as Rebosa should refrain from coordinating commercial conduct by its members, such as the investment and/or partnering with particular intermediation platforms, which is likely to constitute prohibited conduct under section 4 of the Act, or alternatively the Commission to investigate such conduct in relation to the Rebosa partnership with Private Property under section 4.

Extracts: Background

Summarised real estate related extracts from the report.

28.1. In property classifieds, the two largest platforms (Property24 and Private Property) provide listing engine services for free to estate agents listing on their platform (PropCtrl and Fusion respectively) and which feeds the estate agent website. This has resulted in these two being amongst the largest listing engine software providers to estate agents. However, the listing engines of these platforms do not interface with many platforms other than each other, artificially raising the costs of their listing engine clients listing on new platforms in competition. New entrants have even resorted to manually capturing listings to lower costs for agents, but there remain inescapable costs in managing that listing over time (e.g. change in price, under offer or sold status). In contrast, third party listing engines look to interface with the dominant platforms to make their service attractive to estate agents. Furthermore, there is no compelling reason not to do so, with the platforms stating that either it has not been a priority or the initial intention of the system.

28.2. Third party listing engines are also likely entrants into classified platforms because they can bring the listings of estate agents they manage. The larger they are, the more listings they can bring initially to their platform. However, the Inquiry found that both the leading property classifieds discourage switching by estate agents to third party listing engines by charging a R500 monthly fee for the incoming feed where an estate agent has switched. This limits the size of business listings that these potential entrants can bring to a platform launch. The fact that both platforms charge the same fee and Property24 even collected the fee from its clients on behalf of Private Property is suggestive that this may be the product of a collusive arrangement. One property platform has recently indicated to the Inquiry that it will waive the fee going forward which confirms that there is no compelling reason for the fee.

29.1. In property classifieds, both the leading platforms have used a partnership or commercial stake with the leading national estate agents to deprive other platforms of their support. Initially Property24 had a partnership with the industry body which grew support for its platform at the expense of Private Property and propelled it into a leading position. Subsequently, the leading national estate agents took a commercial stake in Private Property through the EAPPC with the industry body Rebosa actively promoting the partnership, and the leadership discouraging the use of new platforms which may dilute support for Private Property as the alternative to the ‘must have’ Property24. This arrangement currently undermines platform competition through depriving new platforms of support from the largest agencies outside the two incumbent platforms, and stifles innovation by doggedly picking one champion to challenge Property24.

80. Online classifieds have high levels of consumer adoption which increases dependency, but with two leading platforms in each. However, in property classifieds there is more of an imbalance as Property24 generates substantially more leads than Private Property, making business users disproportionately more dependent. This has permitted Property24 to increase fees at double-digit percentages annually for a sustained period. This is rationalised to the estate agents based on growing site traffic, but what matters from their listing fee model is ultimately leads which have not seen similar growth, in large part because the number of houses sold have not changed materially. The result is that Property24 is now spectacularly profitable, easily within excessive pricing territory, confirming the degree of entrenchment. However, the online classifieds profitability is also largely a product of the extensive price discrimination and selling of visibility discussed next.

82.2. In property classifieds, there are differences between the two leading platforms in terms of their fee structure. Private Property charges a single fee for unlimited listings per agency or agency office which creates huge discrepancies between the effective rate per listing paid by small estate agencies with ten or twenty listings relative to the large estate agency groups with hundreds of listings at any one time. Given that the largest estate agencies are invested in Private Property and sit on the Board, along with pledging support, it is maybe unsurprising that the platform has a fee structure that is most favourable to them. Property24 has a more complex fee structure which differentiates based on volume of lead categories and average house price. Property24 does charge a higher monthly fee for larger leads categories, but the fee differences are much smaller than the volume differences, resulting in small agencies or offices paying substantially over 300% on a per listing basis than large agencies. Furthermore, there is a similar fee discrimination in all the promotional packages available to estate agencies as they are differentiated on the same basis.

Closing notes

The Competition Commission has created one of the best opportunities for anyone to raise their concerns around problems they face in the online property landscape and present viable solutions. It is disconcerting to me that no real estate industry organisation took it upon themselves to use this as a golden opportunity to voice the concerns of their members in public. Instead, it was left to individuals from 3 independent companies (Entegral, Property Central and 0800 Properties) to stand up against listed corporates and voice the concerns of an entire industry in the public forum.

It’s time for real estate organisations to represent the voice of the estate agent and business owner on the ground, and stop making decisions for everyone behind closed boardroom doors. Forward-thinking, inclusive, cuts down barriers to entry and welcomes competition as a catalyst to drive innovation ticks my boxes, how about you?

For the estate agents our there, go support the alternative SA portals: There is IOL Property, MyProperty, Gumtree, ImmoAfrica, BidOrBuy, Qwengo, Property Matcher, GotProperty/Junkmail, Locanto, Property Central, Property House, Ananzi and a string of others ready to help you market your listings better.

Kudos to the Competition Commission team for all their work in promoting a more competitive online landscape in South Africa, but most importantly for listening. We are looking forward to the final report in November 2022.

Interested in some further reading?

• Full provisional summary report from the Competition Commission.
• Entegral voices real estate industry concerns at the Online Intermediation Platforms Market Inquiry (OIPMI).
• Is the South African real estate industry held to ransom by property portals?
• Portal monopolies and a broken record.
• Lack of transparency holding the South African real estate industry back.
• Is data the new oil in real estate?
• South African estate agents are calling for an industry owned portal.
• How estate agent are competing against their own brand.
• Portals have perfected the art of creating home buyers out of thin air.
• Are property portals competing with estate agents through FSBO listings?
• Who owns the real estate industry?