The online property classifieds business is rapidly shifting from a plain vanilla property listing model towards a recommendation-based mechanism, where real estate portals focus on finding a property that is the right fit for an aspiring home buyer, says Sohel IS, the chief executive officer of HDFC RED.
The online portal is incubated within Housing Development Finance Corporation (HDFC), the country’s largest lender of home loans, and lists properties in the primary real estate market (apartments sold directly by builders), besides providing marketing services to developers.
When it set up shop in 2010, HDFC RED differentiated itself by focusing solely on primary real estate and avoiding the resale and rentals space. This strategy was subsequently adopted by other property portals like Housing.com, when realisation dawned that while rental listings helped them garner traffic, it came at the cost of significant cash burn. But HDFC’s digital innovation factory is now working on a solution that will allow it to enter these segments.
In an interview with Forbes India, Sohel, 41, says real estate sales will be increasingly transacted digitally, opening up new opportunities for his company. Edited excerpts:
Q. What is your outlook on the real estate market? The Uttar Pradesh assembly election verdict has changed sentiments. Now, reforms are expected to be pushed through faster. Overall, the market has been extremely bleak and realty developers have been bleeding. There has been consolidation, with a lot of developers selling off their projects to larger competitors who could afford to buy them out.
Q. Over the last couple of years, how have residential real estate prices moved? For retail customers, the prices haven’t moved much. Builders have figured out that it is a better proposition to find an investor with large purchasing power to whom inventory can be sold in bulk, albeit at a discounted rate. This gives them quick liquidity and also saves them the trouble of having to haggle with many individual buyers. These investors hold on to the houses and sell them in the market in a calibrated manner. If this segment of the market is also taken into account, prices have easily declined by at least 10-15 percent, with rates in some pockets like luxury housing falling by as much as 25 percent. Q. In this context, how has HDFC RED performed? HDFC is the largest home loan provider in the market and a logical extension of the core business was to offer services to borrowers who need help in identifying the right kind of property to invest in. That is what we do with the help of technology. We have begun by focusing solely on the primary real estate market, which accounts for 80 percent of residential real estate transactions in the country. We currently have around 8,000 projects from 4,000 builders in more than 20 cities listed on our platform. We have around 1 lakh unique visitors on our website every month. We expect to report a turnover of around Rs 7 crore in FY17, the same level as in the last fiscal despite the three months post demonetisation being bad for business.
Q. You don’t charge brokerage fees, what is your revenue model then? There are two parts to this. First, we charge builders for leads from potential buyers generated on our site. Second, we offer a whole range of services to builders. These include creating and executing digital marketing campaigns, helping them find the right talent, and other technological services like creating sample flats using virtual reality, which can be shown to local and international investors. Our unique selling point is that we are a neutral entity using our own algorithm to understand what the buyer is looking for—be it the distance from office or the maximum loan installment he is willing to pay—and recommend properties accordingly. We don’t charge money from developers to favourably position their listing. Q. Why have you stayed away from the secondary market and rental listings space? Our strength is our in-depth understanding of the real estate market. In this business, trying to build customer loyalty by burning cash on advertising isn’t a wise strategy. For us, digital marketing and word-of-mouth publicity are more effective. Classifieds companies get into the rental space because it generates user traffic. But the amount of money that is needed to get a supply of properties for rent, including physically verifying them to avoid bogus listing, is huge and doesn’t justify the returns. If I spend the same amount of money [that is required to get a house for rent or resale listed on the website] on getting a developer to list his project, I can get 200 units instead of one. That will grab more eyeballs and generate more leads that I can monetise.
But we have been studying these markets. The home resale and rentals market works predominantly through brokers and we have been working on a cost-effective technological solution to create a network of brokers. We are piloting the project in Mumbai. If successful, we will scale it. Q. How do you see the online property classifieds business and the process of home buying evolving? While online classifieds have enabled aspiring home buyers to gain access to a ready database of available real estate, they have also resulted in information overload. The next orbit in this business is going to be tailored solutions based on recommendations. We have filed for a patent for our algorithm that helps customers with exactly this.
By 2025, a new generation of home buyers will enter the market. They won’t have any of the reservations of the current generation in buying property online. Physical touch-points like site visits can be replaced by using technologies like virtual reality, drones and cameras. And the government has already started experimenting with moving the process of registering property agreements online. When that happens, it will open up many more opportunities for players like us.