Super-brokerage firms pushing brokers out of business
It is not just the big developers who are struggling in the real estate sector but also the traditional brokers, who are going through a tough time. Along with slowdown in launches, builders are delaying their payments, affecting the functioning of real estate brokers in the primary market.
Entry of super-brokerage firms, more organised in their way of functioning, is also leading to the slow elimination of the traditional brokers from the primary market. The super-brokerage firms say in another five to seven years, they would take over the secondary market as well, the way it has happened in China and Brazil.
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Market analysts say the business of a conventional broker is 20-30 per cent of what it was in 2007-08, when developers went aggressive on launches. “Top 10-15 per cent of the traditional brokers are not affected much. However, the bottom 60-70 per cent of the brokers are experiencing a tough time with the entry of the super-brokerage firms like India Homes, PropTiger, Investors Clinic, and others," said Sanjay Sharma, managing director, Qubrex.
The commissions paid by the builders to the brokers range from 2.5 per cent to eight per cent across the country, with lowest commissions in the southern states and the highest in the National Capital Region. However, the organised brokerage firms draw higher commission than the smaller brokers. “The commission paid to the smaller broker is 33 per cent less than the super-brokerage firms like ours," said Samarjit Singh, managing director, India Homes.
Sharma of Qubrex added, since these organised brokerage firms get better commission from the builders, they provide higher discounts to the buyers compared to the traditional broker.
Some of the cash-strapped developers had delayed the payments to the conventional brokers by more than two years in many cases, sources said.
Builders were very regular with payments earlier, but pointed out Rajeev Sinha of Veena Estates, a brokerage, that he was not doing deals for the defaulting builders. Generally, builders are supposed to pay commission to the broker once the buyer makes 35 per cent of the payment of the apartment, however, the terms may vary.
Rajan Chanana, who heads a consultancy firm Avenues, filed a suit against a prominent builder as the company had not paid the commission for a Rs 225-crore deal three years ago.
But the organised brokers were not facing the same feat.
“Super-brokerage firms provide volumes to the builders. We have 70,000 customers and do 400-500 sales every month. We have generated over Rs 50 crore sales each for 10-12 developers across the country," Singh of India Homes said, explaining why builders do not default on their payments.
According to estimates, 14 per cent of the supply in the country are sold by the super-brokerage firms today, compared to just 1.6 per cent two years ago. “The number will go up to 60-70 per cent in the next five years as super-brokerage firms are entering the market at fast pace," said an analyst.
Sachin Sharma, a Gurgaon-based broker, said though big developers were going slow with the launches, the opening of Dwarka-Expressway has brought some respite.
“Though volumes have come down, value remains the same," he said. However, they had gained only in nominal terms, as three years ago, he was selling three properties for Rs 3 lakh, but today, he was selling one property for about Rs 3 lakh, due to property price appreciation.
Super-brokerage firms were concentrating on primary market right now. But it was estimated that in the next five-seven years, they would shift to the secondary market as they generate database of the primary transactions over the years.