Posts Tagged ‘secondary market’

Retail real estate agents closing outlets

Monday, January 21st, 2008

In the last week we’ve been reading news articles on real estate chains closing retail outlets in major cities such as Shenzhen, Guangzhou, Beijing and Shanghai. In China, agents with a street-side presence deal in mid to low-end housing.

It’s not uncommon to see a row of 5-6 real estate agents on one street, and then another row of them round the corner or across the street. You’ll see both home-grown and foreign brands. Business owners wanting to buy into perceived respectability can join foreign franchises such as Century 21 and Baker Caldwell. Properties are not listed exclusively, so with few exceptions, all real estate agents have access to the same properties.

The two pre-requisites for entering the business are (1) a retail space in an area with a high density of privately owned mid to low-end housing (2) A team of resourceful salesmen

Streets with a row of real estate agents are market places in the truest sense. Some start the day with the rather foreign practice of lining up outside the front door reciting self-encouragement slogans. Signages may be large, but retail spaces barely seat the employees who spend much of the day on the pavement, ready to deal with potential clients. In Shanghai, where business is always at a faster pace, a squad of electric bikes is always on hand to zip out to a property with a potential client. The incentives are strong. Salesmen are typically from the provinces where there’s an abundance of young people willing to give it a go. Basic salary is low or non-existent. In good times, the talented have made fortunes in a market where negligible capital gains taxes encourages flipping. But for every success story, there are many who barely scrape by. Reports mention that some have not been paid commissions due.

The Chairman of Changhui, one of the afflicted chains was quoted by sohu.com as saying they’d “grown too fast and too big” (source: AP). With such low barriers to entry, it’s not surprising. The signs of over capacity were there. In the last six months, we noticed retail agencies setting up makeshift stands outside subway stations at peak hours in an attempt to reach out to clients.