Realty portals consolidate

Classified ad business is only $100 mn; players acquiring complementary capabilities to offer complete solutions and focus on the lucrative transaction business

The venture capital-backed real estate classified space is in the midst of a consolidation, with some tweaking their business models to reduce losses. In April, NewsCorp-backed PropTiger acquired Makaan.com for an undisclosed amount. Chennai-based IndiaProperty.com and IndiaHomes could join hands and are currently in talks while Housing.com is shedding businesses and people to reduce cash burn.

"There were eight players (magicbricks.com, 99Acres.com, Makaan.com, Commonfloor.com, Housing.com, IndiaProperty.com, PropTiger.com, and IndiaHomes.com). That's few too many," says PropTiger founder and Chief Executive Officer Dhruv Agarwala. He has not counted niche players such as Grabhouse, Nobroker, which focus on rentals, and Quikr and Olx which also have large real estate classifed businesses.

With PropTiger buying Makaan, and if the Indiaproperty-IndiaHomes deal goes through, the number of players could come down to six. "Most are focused on search and discovery but that's just one of the pain points for customers. He also needs to find the right broker, do the paper work and registration, and needs assistance through the entire process. With Makaan, we have broadened the platform (to cater to new homes plus resale market)," says Agarwala.

The real issue, says Squareyards.com Co-Founder Vivek Agarwal, is that the real estate classified business is only $100 million but customer acquisition costs are high and players are struggling to make money. The transaction business is a much bigger pie - primary real estate sales is a $3-billion brokerage opportunity, while the brokerage opportunity in secondary real estate sales is almost three times that but a difficult market to organise.

"Unlike, say, in the US, the seller agents don't get exclusive mandates; a seller might deal with 10 brokers. The supply is uncontrolled, and no one player can control the supply. Plus, it is a high cash involvement business; if a sales guy handles it there's always a risk of corporate governance or pilferage," says Vivek Agarwal. "The secondary market will be disrupted when more regulations come in," he says. Yet, the portals are trying to grow the transaction pie.

With the primary market in limbo, there's sizeable inventory with both builders and investors. Agarwala of PropTiger expects a lot of transactions to happen in the secondary market.

"Between 2005 and 2012, the primary market boomed, but now the number of launches will get reduced, and the secondary market will be catching up," he says. So, everyone is trying to focus on the transaction pie and emerge an end-to-end player.

PropTiger, which was doing primary sales, entered the resale market with Makaan's classified footprint in 50 cities. Similarly, IndiaHomes has a small transaction services business. Indiaproperty can expand this business and offer it in other markets. Agarwala says like the taxi aggregator space or horizontals (Flipkart buying Myntra), the real estate space will see further consolidation. Investors also feel it is cost-effective to have fewer brands, which means less irrational behaviour.