Estate agents can battle the Tesco giant
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Tesco’s move into estate agency is unlikely to sound the death knell for the sector but it will give existing players a kick up the backside and they will have to up their game to compete
KEVIN PATERSON: SALES AND MARKETING DIRECTOR ASSURANT INTERMEDIARY
In its seemingly unstoppable march towards dominating all aspects of our lives supermarket giant Tesco recently announced plans to move into the estate agency market, saying it wants to sell homes on a no-frills basis at a budget price of £999. But far from becoming the Ryanair of the estate agency sector I believe Tesco is set to revolutionise the way property is b ought and sold.
The service, with the brand name of iSold, is a joint venture between Tesco and national estate agency chain Spicerhaart and will be launched in Bristol before being rolled out across the country.
The threat from this initiative is not to be underestimated and I would compare it to the rise of price comparison websites in the online sale of insurance in recent years.
Price comparison sites overcame technological hurdles to create websites that brought together many insurers in a single place, a feat that many previously thought impossible. Subsequently, these sites have become part of the distribution landscape for many commoditised financial products, taking up to 30% market share.
The estate agency market is a different proposition but what Tesco is doing cleverly integrates the idea of offering traditional services such as a survey, property details and a ’For Sale’ board with the cost savings that technology can bring.
When you combine this with the significant brand benefit Tesco brings plus its considerable purchasing and distribution power, it adds up to a potent and compelling proposition.
This will force some sloppy agents out of business but encourage others to give consumers better service
Also, by teaming up with Spicerhaart Tesco is effectively sidestepping the biggest single obstacle that has prevented it and others from making inroads into the agency sector in recent years - the Property Misdescriptions Act. Having property details drawn up at a local level by an estate agent and surveyed by a qualified surveyor overcomes legal restrictions that have held others back.
This move comes at the same time as Rightmove is seeing a significant rise in the online advertising of property. The website, which lists more than 90% of the properties for sale in the UK, is used by most estate agents with an online offering and will also be one of the avenues used by the new Tesco venture.
I don’t think the Tesco move will sound the death knell for traditional estate agencies but it will shake the sector up and give many agents a much-needed kick up the backside.
The Office of Fair Trading has complained for many years that its surveys show sellers are in large part unhappy with the service they receive from estate agents but the lack of a viable alternative has created something of a vacuum.
So the service and distribution power of Tesco will force some smaller and sloppier agents out of business, many of whom will have been clinging on by their fingertips in recent years anyway.
But it will also encourage others to up their game and give consumers better service. I’m sure better estate agents who have seen their market share increase will already be looking at ways of fighting back against the new threat.
Hedging bets makes sense
The Royal Bank of Scotland has launched a structured investment product that has raised a few eyebrows in the City and beyond.
The facility allows retail investors to effectively bet on the direction of the property market by tracking Halifax’s house price index. Investors can hedge against a rise or fall in house prices and the product could be a useful additional investment vehicle as part of their overall asset allocation tools.
My first thought was that this would be a distasteful addition to any investment fund. By allowing investors to bet on house price falls RBS is doing nothing to encourage stability in the market - pretty ironic for a largely state-owned bank.
But on second thoughts, given that for many consumers their house represents their largest investment, I suppose being able to hedge against a fall in value over a two to five-year period isn’t such a bad idea for those who want it.
Renting may be here to stay
In the past couple of years the fall in house prices coupled with the lack of availability of mortgage funding has forced many would-be house purchasers to rent instead.
Indeed, many sellers who have been unable to shift their houses have become accidental landlords.
Given the state of the economy this hasn’t necessarily been a bad thing as landlords have seen a return of more than 10% in the past 12 months, with a predicted return of more than 8% in the next year.
Forecasts for the rental sector are good as many aspiring buyers remain priced out of the market.
But I wonder if these trends could have a more enduring impact on our property market.
Perhaps we will move closer to the German model of property tenure, with more individuals renting instead of continuing the British tradition of single-mindedly focussing on owning a property at any cost.
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