China property

Hong Kong agent Centaline is feeling threats on every side

PUBLISHED : Tuesday, 27 October, 2015, 8:31am
UPDATED : Tuesday, 27 October, 2015, 5:56pm

Once the market leader in China’s real estate brokerage business, Hong Kong-based Centaline Property Agency is feeling threats arising on every side in the wake of the speedy expansion of mainland real estate agencies backed by the booming internet era.

The agent does not only face competition from mainland property agencies such as Homelink or World Union Properties Consultancy, but also competitors from online real estate platforms such as Soufun and

All want a share in the country’s offline brokerage business in the new and second-hand home market, where transaction values are estimated at 10 trillion yuan (HK$12.2 trillion) a year.

“From capital to talents, they are also very strong,” said Shih Wing-ching, founder and chairman of Centaline. Shih, with a number of shareholders, established Centaline in Hong Kong in 1978 and is now the market leader in the city. It entered the mainland real estate brokerage since 1992 and now has about 1,500 outlets in more than 30 mainland cities.

‘We were once the market leader with strong presences in Shanghai, Guangzhou and Shenzhen. At the time, mainland agents were not familiar to the industry. They followed our business model.”

But in the wake of the booming internet era, Shih said Centaline also needs to adapt to the changing business model in China.

‘We are concerned about costs and profits when considering expansion. But they don’t. Their strategies are chasing market share. They aim to beat down the existing industry leader by providing low or even free brokerage services, and at the same time they expand at a rapid pace. Once they establish an absolute dominance in the market, they can make profits,” said Shih.

The large amount of spending in developing digital data management is also a reason for mainland rivals to head into the market.

‘A lot of capital is required during the process. But they have lots of money to spend through booming internet financing and support from venture capital companies in China. This is where we cannot compete, ” he said, citing that the startup easily raised US$223 million in July.

Centaline lost its leading position in Shanghai market after Beijing-based Homelink expanded its outlets to about 1,000 through acquisitions this year.

“We have more than 400 outlets in Shanghai, that scale is not small. But (Homelink) came in through acquisitions. They also poached our agents,” he said.

Locked in the fierce battle, Shih said his strategy is : struggle to stay afloat and survive.

His company is mulling a public listing to build up its war chest.

“Seeking a listing status does not mean we will win, but it will help us to fight in the long-lasting battle that will last for three to five years,” said Shih.

“Listing on the mainland is not realistic even though the valuation is much higher. A long queue is waiting there,” he said. He personally hopes to list the business on the Hong Kong exchange that may raise HK$1billion to HK$2 billion for future expansion on digital management and mobile services.

But Shih said he has not got all shareholders’ approval.

Over the years, shareholder Wong Man-yin opposed floating shares on the stock market but he recently was invited to join the board of directors of Centaline, suggesting new hope of the listing plan.

“We hope that Mr Wong will have a better understanding of the challenges that the company is facing,” said Shih.

He remained confident about the firms’ outlook.

“ We believe their business models are risky. Not every one will make a success. Some of them will eventually leave . As long as we are not forced out of the market, we will have our position. Homelink is doing quite well. But we believe that the vast mainland market can allow more than one property agent,” said Shih.

While the fierce battle continues, mainland agents are gearing up to head to Hong Kong. For example, the Shenzhen-based firm Qfang vowed to open 200 outlets in Hong Kong in the next two years.

“Currently (Qfang) has around 50 outlets in Hong Kong. They are not yet a threat,” said Shih.