Battle lines drawn as property market slumps

When the market tide turns, friends sometimes become enemies as they fight for a firmer footing.

The mainland's real estate website operators are now engaged in a war with property agencies after cracks started to appear in the housing market.

They want to charge more for property listings because falling property transactions are cutting revenues but property agencies have hit back and threatened to withdraw their listings.

"The property market is very sluggish now. The third-party website plans to raise prices regardless of such a change, and agencies are reacting in an understandable and reasonable way," said Century 21 China Real Estate, a major property agency, referring to SouFun Holdings, the country's largest real estate website operator.

Century 21 was one of five agencies with nationwide networks that recently boycotted an attempt by SouFun to charge more for property listings on its website at a time when the real estate market is cooling because of oversupply and tight credit. The other four were Centaline China, Homelink, 5i5j and Maitian.

They said SouFun's charges had soared more than tenfold in the past five years, while their own commission rates had hardly changed.

Property transactions have been falling, with Century 21's data showing second-hand home sales slowing last month to the second lowest in 25 months in Shanghai, while transactions in Beijing fell 27.5 per cent year on year.

SouFun responded on June 11 by offering a 40 per cent discount on existing packages plus a few free listings, which the company estimated would cost it at least 500 million yuan (HK$621.8 million). It also offered the property agencies low-interest loans of up to 10 million yuan to help them survive the downturn.

Century 21 said on Wednesday it would accept the offer, but some other agencies were not satisfied.

At a press conference on Wednesday, the Shenzhen branches of Centaline, Midland Realty, Zhonglian Real Estate and Shihua Real Estate demanded a 50 per cent discount.

The souring of its relationship with the real estate agencies is hurting Beijing-headquartered SouFun badly. Its American depositary receipts plunged 17 per cent on June 12, pushing the price-earnings ratio to an 11-month low.

The company's income from listing services rose 57 per cent in the first quarter to US$42.1 million, primarily because of an increase in paying agent subscribers, and accounted for 35 per cent of its revenue, company data showed.

Deutsche Bank cut its rating on the stock to hold, citing concerns that discounts on subscription fees would erode profit, with a "fair chance" the management would lower earnings guidance.

In a teleconference with analysts on Tuesday, SouFun chairman Vincent Mo Tianquan acknowledged the cooling market would affect the company's performance, unlike in past downward cycles when it escaped relatively unscathed.

The stock rose on Wednesday but fell 0.21 per cent on Thursday to US$9.38.

SouFun is not the first real estate website operator to be challenged. Nine property agencies in Shanghai formed an alliance in March to oppose Anjuke's plan for a 27 per cent increase in listing charges and removed their properties from the website. Soon afterwards, Anjuke backed down.

"In order not to bring more pressure on partners, Anjuke announced and stopped the price adjustment plan on March 11," it said.

So far, it seems the agencies are winning the battle. But industry watchers said the fight should also serve as a wake-up call for agencies to rethink their own practices and survival strategies in the internet era.

"It is very important, at least at the current stage, to build up the credibility of the property agencies," Ding Zuyu, a co-president of property services company E-House (China), said in an article posted online.

His company also owns a real estate website and is a major rival of SouFun.

Ding said that after 50 Qingdao agencies removed their properties from SouFun's website, there were still between 40,000 and 50,000 listings, down sharply from the previous 250,000 to 300,000 but very much inflated from the true number.

That meant agents were listing the same property more than once, or even worse, injecting false information into the website that their firms had to pay for.

That has added to the woes of Jane Jiang, who has been trying to sell her home in Beijing for the past six months. "Some agents put photos of my home on different websites, but the price was totally different from what I am asking for," she said.

One accusation that Shenzhen agencies levelled against SouFun was that the website encouraged malpractice by allowing individual brokers to sell flats through its platform without informing their employers.

Ping An Insurance (Group) upset the industry last month when it launched a real estate website that would bypass property agents in deals, although many analysts said its real aim was to promote its crowd-funding platform, launched earlier this month.

Centaline China, Homelink and other agencies are now investing heavily in websites and smartphone applications.

With external challengers kept at bay, their alliance is likely to falter and old rivalries resume.