Two interesting bits of news.

Traffic for online real estate sites grows 

According to an article in Invertia, Fotocasa’s audience grew by 19% in February 2008. According to NielsenRatings, Spanish real estate websites had a total audience of 3.2 million viewers, or 17% of the total Spanish Internet audience. Fotocasa claims to have 1.6 million viewers, according to information provided by Market Intelligence, which would make it the most visited real estate site in Spain. The interesting bit is that Idealista generally also claims to be the number 1 real estate portal in Spain, and at least in the public imagination (as represented on the blogosphere), it is. And it’s strange that Invertia uses the sector numbers from NielsenRatings, but gets Fotocasa’s numbers from Market Intelligence, without any attempt to reconcile the two methodologies.

In any case, the good news that the crisis is not hurting the growth of Internet property sites. Fotocasa, in particular, seems to have wisely diversified its offering more to reflect current market conditions, with a healthy focus on rentals.

People will always need a place to live — the question is just whether they’ll have to buy it, rent it or share it.

But Banks Are Helping to Kill Real Estate Agencies and Developers

On the other hand, César Villasante (whom I met at SIMA and who is a really cool guy) has an interesting post about how Spanish banks are responding to the current crisis by discouraging potential home buyers. Based on anecdotal evidence, César recounts that many Spanish banks are counseling potential buyers to invest in the banks’ investment funds rather than buy property. The banks argue that property prices will continue to drop dramatically, so there’s absolutely no rush to buy right now. In fact, from the banks’ perspective, since the property itself is the biggest guarantee of a mortgage, banks have no interest in financing overvalued homes, because if and when the value of the purchased home drops, the banks’ risk exposure only increases. So the banks prefer to wait until the amount that they’re financing reflects the real value of the home, so that their risk is minimal in the event of foreclosure (and in the context of the current liquidity crisis).

When combined with the fact that the banks are not interested in bailing out failing real estate agencies or developers, the bottomline is that the banks are helping to hasten the death of a large portion of the real estate sector — on the one hand largely refusing to refinance vulnerable real estate businesses and on the other hand counseling buyers to wait until prices drop even more before buying property (or alternatively refusing to finance home purchases unless the potential buyers can provide lots of guarantees).

In the current market, time is on the buyers’ side, and it’s certainly on the banks’ side.

But with few realistic prospects of sales or refinancing their debt, the clock is definitely ticking for most real estate professionals.

The New York Times has an interesting op-ed piece about bringing hope, confidence — and buyers — back to the US real estate market. The author’s premise is pretty simple: To get home buyers back in the real estate market, it’s not enough to focus on lower prices, because a lot of potential home buyers are simply too scared to buy anything right now. And if they’re not scared, then they’re being very clever — that is, they expect prices to keep decreasing, so they’ll just keep on waiting to get the absolutely lowest price. A good deal is no longer good enough. Many buyers want the very best, cheapest option. After all, it is a buyer’s market.

The result is inertia fueled by a hypercautious speculation and fear, which would spell disaster for large sectors of the economy if left unchecked.

The solution therefore requires returning hope and confidence to real estate buyers. We need to convince them to suspend disbelief despite all they’ve been reading about credit crunches, foreclosures, sub-prime bla bla bla . . . The media is selling papers by selling fear, but it’s clear that a moribund real estate market is not in any country’s mid-term interests.

So the big question is: How do you return confidence to home buyers back in the context of carnage and despair that define current real estate market conditions not just in Spain but in many countries throughout the world?

The author suggests that the best measure would be to give potential buyers rebates to incentivize them to buy property - in this case, the author suggests a 5% tax rebate of up to $25,000.

And he argues that it should be done after the real estate market after the market has sufficiently corrected itself, which the author estimates should be between August to December 2008. Under this approach, the rebate would last for 12 months.

I’m not sure a rebate of €25,000 would be sufficient in the US market, but it might work in Spain, if done in conjunction with other measures. In Spain, the problem is two-fold:

• Buyers need to begin to have faith that now is the right time to buy — that they shouldn’t feel stupid for not waiting a little bit longer, and
• Banks need to be willing to lend people the money to buy property at an affordable price.

It’s clear that the first problem won’t be solved until the second one is addressed. In the last few months of my real estate business, one of the most frustrating experiences was finally getting an interested buyer only to have the bank reject the application or request a double guarantee or some other very stringent requirement that sent the buyer running back to live with Mommy and Daddy.

That being said, the sub-prime crisis is sufficiently scary to make me empathize with banks’ unwillingness to extend credit to risky applicants. Banks really shouldn’t be lending money to people whose only asset is the dream of being a property owner. If you don’t have a steady job, assets or any sort of guarantor, maybe you really don’t need to be a home owner.For me, the essence of the current quandary is stemming the circle of fear. Banks have lost confidence in businesses and in home buyers, and home buyers have lost confidence in ever being able to afford a decent home. And it seems that in large part, it’ll be up to normal economic forces and the government to instill confidence in both parties.

What do you think? Should the Spanish government offer similar incentives to home buyers to get them back? At which point should the rebate be offered? Will it make any difference, or are more fundamental changes in the Spanish real estate market required? If so, what might they be? And in light of the current credit crunch, what, if anything, should the Spanish government do to convince banks to support the real estate industry and potential home buyers, without going in the direction of the sub-prime mortgage debacle?

A few months ago, some real estate agencies were still claiming that there is no crisis currently facing the real estate sector in Spain.

But those people are probably either living in The Twilight Zone and/or out of business by now.

Even the New York Times has been running a series of stories about the Spanish real estate market, noting that the Spanish housing market is in even worse danger than the US market! That’s saying quite a bit.

In my last post, I looked at the announcement that Expofinques was seeking bankruptcy protection. Out of curiosity, I searched for headlines related to the other two franchises that I investigated back when I entered real estate in 2005: Don Piso and Tecnocasa.

Here’s what I found:

• La red de venta de pisos Expofincas suspende de pagos: I already examined this story in my last blog post.
• El Grupo Tecnocasa reduce un 39,3% su beneficio en 2007 y cerro 387 oficinas en España: Tecnocasa, another of the major Spanish real estate agencies, earned €8.8 million less in profit than in 2007, which is a 39.3% decrease relative to 2006. The group’s turnover was €51 million in 2007, 10% less than in 2006. In 2007, the group closed one-third of their franchisees (387 of 1052 offices). The franchisees overall earned €215.56 million in 2007, which was 30.9% less than in 2006. Tecnocasa sold 16,760 homes in 2007, which was 27.1% less than in 2006.
• Efectos del frenazo inmobiliario: Don Piso ajusta plantilla y cierra 26 oficinas comerciales: Don Piso, probably the strongest national brand, supported by one of Spain’s most blue-chip companies, Grupo Ferrovial, has 136 internal offices and 227 franchised offices. They note that the franchisees have been the worst hit, given that they have to pay a fixed monthly royalty payment of €1200 to €1500 (in Expofincas, for example, the royalty was variable, dependent on sales). In total, the Company had closed or expected to close 36 offices as of October 2007.

So what can we learn from the current crisis?

• It’s the banks’ (and Alan Greenspan’s) fault: Whether fairly or not, everyone blames the banks, which aren’t being very flexible in terms of lending money either to potential buyers or to agencies in need of refinancing their debts. Everyone’s been burned by the US sub-prime mortgage crisis and the resulting world-wide credit crunch (which some people are blaming on Alan Greenspan), and banks are no longer willing to take risks.
• A buyer’s market: If you are a relatively “risk-free” home buyer (meaning that you have your finances more or less in order — that you’re the kind of low-risk client that banks now like), then now is the time to begin your search. If not now, then in the near future, as both real estate agents and sellers are desperate to sell — in some cases, their very survival might depend on their capacity to get a few sales done. Agents and sellers no longer have the luxury of being chulo (arrogant), as pretty much everyone was a couple of years ago when buyers were fungible. Now the buyer is the queen!
• Internet is the cheapest option for sellers, and the most convenient option for buyers: Despite the crisis, people are still searching for properties, and when they do search, more are searching online. So even if the overall number of real estate purchases decrease, the percentage that is searching online is increasing. In addition, agencies are now more willing to try new, cheaper options that might allow them to reach interested buyers. For that reason, the newspapers will lose big as more agencies go under, because fewer agencies will be able to pay the exorbitant price of placing their ads in even 1 major newspaper. By contrast, Idealista is a lot cheaper, and nuroa.es, our Spanish property search engine, is free for agencies.

There’s an expression in English that “when the going gets tough, the tough get going”, which means basically that the only way to overcome a difficult situation is to work harder and better. The real estate crisis will no doubt shake up the Spanish real estate market, and there will be a few winners and lots of losers. But that’s life, and instead of looking at the glass as half-empty, I prefer to think that current market conditions provide a unique opportunity for disruptive Internet products that can help a troubled real estate sector buy a little bit more time in order to survive the current downturn. And it’s clear, of course, that I think that nuroa is such a product.

With all of the commotion about Expofinques’s seeking bankruptcy protection and continuing signs of a real estate crisis, I almost forgot to mention that nuroa has reached an agreement with Spain’s leading real estate group, Metrovacesa, to open up a new homes section to our property search engine.

I have to say that I really admire Metrovacesa’s approach. We first got in touch with them, when they invited Victor (the author of our Spanish blog “Sin Techo“) to a meeting to talk about their aggressive new Internet strategy. A lot of real estate groups are just starting to bet aggressively on advertising online, but Metrovacesa is already one step ahead; they’re not just trying to advertise properties, they want to complete the transaction online.

They’ve got cojones, and we admire that. And since we like to think that we also have cojones, we figured they’d make ideal partners.

I’d like to think that this is just the first of many such deals. After all, Metrovacesa is Spain’s leading real estate group, so convincing them was a pretty big test for us. Metrovacesa is one of the only listed Spanish real estate companies whose share price continues to increase, even as all of the other real estate groups struggle to withstand very brutal attacks on their share prices, or simply struggle to stay out of bankruptcy court.

They obviously have a clue as to what they’re doing. And it’s always exciting to know that market-leading companies have confidence in our project.

By the way, thanks to all of the journalists, bloggers and press services that wrote about the story, including:

• Javier Martín from Loogic
• Carmen López from OjoInternet
• Cinco Dias
• Yahoo Finanzas
• El Economista
• Finanzas.com,
• Carlos Mantero,
• Victor Aloi (Sin Techo), and
• Europa Press.

It was bittersweet to read that the real estate agency Expofinques has entered into bankruptcy protection. Expofincas is the first major Spanish real estate agency that has sought bankruptcy protection (various developers are already in a similar state of affairs).

I actually know Expofincas quite well. My first business was a franchise of Expofincas in the Eixample Esquerre, and I think I was among the initial group of real estate franchisees in Barcelona. I remember fondly the training sessions, which took place over a couple of weeks, and where I learned about “pisos calentitos” (apartments that will get sold quickly) and “compradores verdes” (first-time buyers who are eager to learn but unlikely to buy in the near future). I became fluent in the language of Spanish real estate speak thanks to Expofincas.

But by 2005, I realized that I wasn’t entirely convinced by their model. They had captured the form of American real estate franchises, but not the spirit. There was a lot of internal tension in the company itself between the franchise department and the internal staff (they have a mixed model between franchised offices that are run by entrepreneurs under a licensing agreement and offices run by full-time employees of Expofincas). In addition, their operational staff consisted of a lot of old-time real estate agents who were anti-Internet(though in later years they’d become one of the biggest spenders in online advertising). They instructed us that agents shouldn’t be given computers, because they’d only surf the web all day — that all of the tasks required for entering new apartments could be done by speaking with porters in apartment buildings, contacts and looking at La Vanguardia. Most of all, I hated that they treated the entrepreneurs and our staffs like dumb children. They didn’t see us as partners in extending their brand, and didn’t really want us speaking with one other franchisees. They made me feel like an idiot who’d paid a lot of money to fund their expansion efforts.

When I told them that I wanted out of my franchise license, they tried to convince me that sticking with them and their brand was the best way to withstand the eventual consolidation of the real estate market that we’d all been expecting but that no one really seemed to believe was around the corner. They highlighted the fact that they had the economic resources to withstand a downturn. And they hinted that if my agency wasn’t working as well as they’d originally projected, it was because of my own defects - not economic factors or failings of Exponfincas — which meant that my best bet would be to stick to them.

I left and eventually started nuroa, a property search engine focused on the German and Spanish markets, based in large part from the experience that I’d gained via Expofincas and then afterwards.

And there’s probably a lot of truth in what they said about my failings. It was my first business, and you really do learn a lot about yourself as a first-time entrepreneur. You learn a lot about yourself, your threshold for pain, your family, friends and loved ones, your strengths and weaknesses, etc. Everyone loves you when things are going well, but when things go badly . . . you really begin to understand the logic of the expression “a friend in need is a friend indeed.” And hopefully, you begin to live by the expression: “Fool me once, shame on you. Fool me twice, shame on me!”

So that’s why I feel a bit bittersweet. I chose to collaborate with Expofincas, because they had a great reputation in the real estate sector, and because they had an ad with Jesus Vasquez. And while I feel somewhat vindicated that maybe I wasn’t such an idiot after all, I also feel humbled to see such a prominent brand brought to its knees by the vicious combination of the international credit crunch (which meant that the banks didn’t give them viable options to refinance €10 million in debt) and the real estate crisis in Spain (which meant that they really don’t have any income to make debt payments and pay current expenditures).

People have been talking for years about how the Internet was going to  disintermediate real estate agents much in the same way that Internet has largely disintermediated travel agents. For the most part, things haven’t turned out that way. Here at nuroa we appreciate that real estate agents still play a critical role in the buying and selling of flats and houses.

But before I get too far ahead of myself, let’s define what “disintermediation” is. Simply put, it means cutting out the middle man; cutting out the (real estate) agents and putting the principals (the buyer and the seller) in more direct contact.

Why is disintermediation relevant? For the consumer, cutting out the middle man also means cutting out the middle man’s commission.

Take a look at the travel industry, for instance.  A lot of people buy their tickets or book their hotels online. No need to walk down to the local travel agent’s office and sit down while she searches through all of her catalogues. Now you can just do it yourself via Expedia or eDreams.

Real estate, however, has proven to be more difficult to disintermediate, because there’s so much more at stake than a €2000 vacation. For most people, their home is their castle. Buying a home is the most important financial decision in most people’s lives, and it involves lots of boring stuff like laws, numbers, notary publics and annoying sellers.

So here’s the big question: Would you really be willing to spend €400.000 online based only on pics and maybe even a video tour? 

I probably wouldn’t, and I bet that most people wouldn’t either. The notable exception is Spanish real estate giant Metrovacesa, which has proven that their clients are willing to buy new developments (obra nueva) online based entirely only on the specs. For second-hand homes, however, it’s likely that there is — and maybe always will be — a trust factor that can only be dealt with by physically inspecting a property and, in many cases, by receiving the expertise and guidance of a real estate agent.

That’s why I think that Redfin’s model makes a lot of sense. They decrease the importance of the real estate agent via the Internet, but don’t deny that the agent currently still has an important role to play. There’s a lot of interesting consumer advice online (whether in the form of Q&A’s, wikis, blogs, etc.), but real estate agents are still important for the part of the process that require human judgment and sensibility — all of the intangible stuff that might include body language, things like negotiating price, figuring out an owner’s urgency to sell, knowing when to kiss the owner’s ass, knowing when to ignore or threaten the owner, figuring out how to outbid a competitive offer without paying too much, etc.

Redfin, in effect, offers an Internet business with a human component — they call it the “Redfin Advantage”. Under this model, the customer does all of the parts that don’t need an agent — e.g., finding attractive homes online,  researching neighborhoods, scheduling home tours and making an offer. The agent only steps in an expert negotiator — a closer — is required. The agents are paid a salary by Redfin, and their bonuses are based on customer satisfaction rather than sales price, which means that agents’ interests are aligned with the buyers’ and everyone’s goal is to get the lowest sales price. (Under the traditional model, the agent’s incentive is to get the highest price possible, as her commission is usually a percentage of the sales price, so the agent’s incentive is probably more aligned with the seller or at best conflicted.)

As proof of their effectiveness, Redfin released a study yesterday noting that on average their clients saved $15,568. And at the end of the day, regardless of all of the bells and whistles related to different types of real estate sites, the bottom-line is the same: Home-buyers want the best property at the cheapest price. Whoever can accomplish that feat has a good chance at really disrupting the current marketplace.

Perhaps as a testament to the disruptive potential of Redfin’s model, the traditional real estate industry seems pretty much antagonistic towards Redfin, as the company only reinforces the idea that real estate agents are largely irrelevant, except maybe for certain later-stage parts of a transaction. And the take-home message is clear: Since agents are only needed at the last part of the transaction, they should cut their standard commissions dramatically.

What do you think about Redfin? Is it the future of real estate? Or is it more likely that at some point real estate agents won’t be necessary for even the latter stages of a transaction — will a clever algorithm someday be able to do it all? And even if a clever algorithm could do it, would you trust it with your life savings?  TechCrunch’s claims to the contrary notwithstanding, can a machine ever entirely replicate or surpass true expert knowledge?

Every now and then when we meet with potential investors, a skeptical venture capitalist will ask: “But how is the housing crisis going to affect your forecasts? There’ll be fewer agencies, and they’ll have lower budgets. Isn’t this the wrong time to start a real estate site?”

Good argument, but the evidence seems to suggest the contrary.

Various sources, including El Pais, printed a press release last week based on a study from “Construcción Alimarket” noting that real estate portals and search engines are receiving approximately 13.82 million visits per month, which is a 63% increase relative to the same time last year, despite the fact that real estate sales are dramatically and notoriously down in Spain. Real estate agencies are closing their doors in droves, but the public still keeps looking for their dream homes and increasingly they are doing more of their searches online, driven by the dual facts that online searches are more convenient and that more agencies are diminishing their offline presence in favour of a more robust online campaign. The release also notes that 8 new portals will be launched this year in Spain, and each is projecting user traffic of about 600.000 monthly visits.

It’s simple to understand why agents would increasingly move their marketing campaigns online. The move online is part of a larger global trend across industries, but the fact that real estate agencies have increasingly more limited advertising budgets means that return on investment is a key consideration, and online portals and search engines generally offer a better return on investment than traditional newspapers. Relatedly, an online campaign is often a lot cheaper than publishing ads in newspapers.

One final point is that the analysis suggests that the Spanish online real estate market is far from consolidated, particularly if you compare the market shares of Spanish market leaders to those of their French, German and UK counterparts. Idealista, for example, is the Spanish market leader with a 9.4% market share (1.3 million monthly visits). Fotocasa is second with a 8.7% market share (1.2 million monthly visits), while Yaencontré is third with an 8.4% market share (1 million monthly visits).

Spanish online real estate is arguably still in its infancy (relative to other developed nations), and this is good news for all market players.

In our case, it suggests that there is still ample room for new kids on the block like nuroa.

I’d like to welcome two of migoa’s employees, Victor Aloi and Kirsten Kottman to the world of blogging.

They’ll be writing about what it’s like to live in Barcelona as young expats, real estate news generally, and the challenges and joys of promoting nuroa and trying to make it into a market-leading property search engine.

Victor is our 26 year old product manager for Spain. He started out as an intern (while he was getting a masters in corporate communications and advertising) but impressed so much that we hired him full-time back in June. In Brazil, he studied journalism and had a very popular personal blog. In addition to being a co-worker he’s also one of my best friends in Barcelona (which happened after we started working together). His blog will be in Spanish.

Kirsten is our German community manager. She’s originally from Berlin (one of my favorite cities in the world) but now lives in Barcelona (my favorite city in the world). Her background is in PR and journalism, including a stint at MTV. She’s really cool and really hard-working, and we’re lucky to have her. Her blog will be written in German. I’m looking forward to seeing how she deals with our collective craziness at our next party, which I hope will be a drunken karaoke session.

So far, the best blogger of our bunch is still Carlos, who continues to inspire us all! In fact, Carlos was going to do our presentation at Ojobuscador before it got cancelled. We miss him, but a good education is the most important thing, even more important than working at migoa!

We’ll see if Kirsten and Victor can make up for lost time and give Carlos a run for his money!

It’s always nice to be liked!

It was cool to receive such positive reviews of nuroa from the Spanish blogosphere.

I mean, I’ve been pretty consistent in saying that we wouldn’t launch until we were happy with the product, and we are pretty happy with it (though the site’s still in private beta because there are a few more annoying bugs to fix).

But it’s always nice to see that you are not crazy and that other people share your opinion.

At the very least, I’ll never have to hear again that question to which I’ve become too well accustomed: “Have you launched yet?”

It’s a little like giving birth. At some point, you just want to get the damn thing out!

A year and a half is a long time.

And I kinda got tired of my mom’s constant questions about our delayed launch dates.

So all I can do is say “thanks” to all of the bloggers who took the time to test nuroa and express relief that our hard work was appreciated by leaders in the Spanish blogging community.

We still have a lot more that we want to do. Our limitation is more related to financial and human resources considerations than it is to imagination or a desire to innovate. (It must be nice to work at Google!) But in any case, we’ve only just begun.

For those of you who can read in Spanish but don’t have the leading Spanish bloggers in your blogrolls, here are the links to some of the bloggers who reviewed us:

• Carlos Mantero (disclaimer: Carlos worked for us)
• Error500
• Genbeta
• Incubaweb
• jcdelolmo.es
• Las Tareas
• Loogic
• Technología Inmobiliaria
• Visual Beta
  
• Tecnorantes (disclaimer: Juan Luis is a member of our advisory board)

Once again, I’m happy that we didn’t disappoint anyone too much.

Now the real fun and challenges begin!

The APIs (Spanish association of real estate professionals) are going to go down fighting!

And maybe slightly mislead the public along the way.

It all started on my to work yesterday. The front-page headline from the free daily newspaper grabbed my attention: “Real Estate Professionals Suggest that You Buy a Flat Now”.

I thought: “What the Hell?”

So I went to go find the article, and in the process picked up a “20 Minutos” and surfed El Pais online. They all tell the same story without any attempt to verify if what the APIs say is true. Obviously, the APIs have a vested interested in jump-starting the market. That’s why they want you to buy now. Does good journalism mean investigating the story? That’s a debate for another day, I guess.

Anyway, here’s the API’s argument:

• Prices in Barcelona dropped by 2% in 3Q 2007
• Prices have increased in “only” 4/10 neighborhoods in Barcelona (isn’t that almost half? And in any case, it seems that the prices are rising in the areas in which I’d want to live.)
  • 3% rise in the Eixample Izquierdo
  • 2% rise in San Andreu
  • 1% rise in Sarrí-Sant Gervasi
  • 1% rise in Sants-Montjuic
• Demand from buyers has decreased by about 20%
• Sales are about 75% less than they were in 2005
• 30% of real estate agencies/offices have closed. By the end of the year, that figure will rise to 50%.

The APIs also note that since this is no longer a sellers’ market, they will only work with sellers who accept reasonable valuations and who will give them exclusive rights to show the property.

They say it is as if exclusivity is an advantage for the buyer, but it probably only helps the agency. The APIs try to spin it by saying that exclusivity means that buyers won’t be pressured, but an agency can still “pretend” to have another interested buyer or use other pressure tactics to animate a hesitant buyer. That’s unlikely to change. It’s part of the sales process.

Almost hidden in the articles is the fact that year-on-year, prices in Barcelona are still 2% higher than they were a year ago. 2% is immaterial once you take into account inflation, but it’s still slightly misleading to take the 3Q numbers out of their full context — the real estate market is pretty dead, the majority of real estate agencies need life support, prices are stagnant, but there’s no dramatic increase or decrease of prices.

It’s not clear why now is the moment to buy.

The dramatic numbers — 20% decrease in demand, 75% decrease in sales, 30-50% of the offices are/will be closed — all refer to the dire state of real estate as a business.

The numbers that would be relevant to buyers — 2% drop in prices in 1 quarter / 2% increase in prices — are almost immaterial by comparison and pretty much cancel each other out.

That being said, you have to give the APIs credit. They are resilient and know how to sell a story.