propertyportalwatch.com welcomes a guest post from Ernesto J. Plaza, summarising his opinion of the impact of the real estate crisis in Spain and its effect on Spanish property portals.
Ernesto is co-General Manager of Avantine, a Marketing, Publicity and Software consultant for Real Estate businesses. For the last 10 years and until some months ago he was co-founder and General Manager of the third biggest property portal in Spain and also CEO of their overseas branch for the last 2 years.
Photo credit: Flickr/clspeace
After more than ten years of a vertiginous growth that many in Europe called “the Spanish miracle”, crisis landed in Spain as a new tourist… but to stay for a long time, much to our regret.
If we analyze the facts that caused such a big and continuous boom in our economy, the transfer of huge economic resources as structural funds was the trigger of a long bonanza period.
The reflex in residential building in this period was that we passed from building 400,000 houses every year to more than 800,000. Decisive contributors to this growth were the existing needs after a 1992-1996 crisis period with a latent demand, abundance of liquidity and the extraordinary revaluation of investments in this kind of assets. For over eight consecutive years annual profitability grew more than one figure, therefore almost doubling its value.
We must also add that our country has the huge merit from some years ago of being one of the two biggest tourist destinations in the world. A lower income level compared to those of countries in Northern Europe, together with an attractive exchange rate in a recent past (when 1 pound was equivalent to 1.70 Euro) became a magnet for peripheral areas such as the United Kingdom. This meant that approximately 30% to 40% of property developments in the Southern Mediterranean coast were acquired by foreigners who mostly pretended to retire here.
Nowadays, and after more than 18 months of absolute business drought, more than 60% of the real estate agencies have disappeared, complete franchises have closed down or are intervened. Lifelong professionals remain in most cases without employees and living more on their rental offers than on sales. House prices have fallen over 20% and they may still go down as it is estimated that there is an overoffer in excess of one million houses.
Regarding the new developments sector, so powerful in Spain, it is now – in a small but noteworthy part – letting in new managements ahead of these business structures and also transferring their property to those who financed the “fiesta” in the past. Competition is also fierce trying to make money out of all land developments and obtain liquidity to bring down the debts, living on the rented assets, building social housing, etc. We are getting ready for a year 2009 that looks quite hard; demand may return slowly by the middle of 2010.
In the Internet field, many property portals were born around 1999. The boom and the “.com” crisis of 2001 reduced the figure to just 4 or 5 brands. Nowadays, two of them lead the sector with an average of 2 million single users per month, followed quite behind by a numerous group sharing approximately 25% of the market and, in the best of the cases, of the business.
Income for the leading portals was, in the last year, around 15 million Euro with approximately 20% profit margins, as published in their interviews and blogs. They also mention that this year crisis has hit their businesses – mainly in their growth plans but the tendency remains unstoppable in other parameters.
One of the oldest business models in this race is pay-per-list, with tariffs in proportion to the number of single users they have and the leads that they produce. The rest of the portals maintain income models based on pay-per-lead and there is even one based on a pure commission over sales.
Logic says that we will be seeing entrepreneurial movements such as mergers between those who dropped behind and that we will also have to say farewell to those who do not find synergies in their union, or to those who think they can cope with this alone having a short cash flow and not adding new values to future business development.
New players are coming into the business as has happened in other countries and, even if they don’t have a very clear income model, they will cause some harm.
The challenge that Internet has raised to the classified ads in traditional press has become an absolute disaster – there is no better example to illustrate this as the recent disappearance of “Segundamano” newspaper, the biggest and historical reference of classified ads in Spain.
As it has happened before in other cycles of our economy, the property sector must renovate, reduce their costs even more – mainly those in marketing – and take advantage of all technologies within reach, demechanize and computerize information as much as possible, deepen in the knowledge of their clients to provide them with specific solutions, learn how to work with databases and segmentations that only Internet can supply, analyze in depth the returns provided by publicity campaigns in means, and, therefore, overcome the “drought” period we are going through.
No doubt more than one will be reborn stronger as the mythical Phoenix bird, as sure these are also times of opportunities and even more as we advance into the next year.
by Ernesto J. Plaza
co-General Manager of Avantine, a Marketing, Publicity and Software consultant for Real Estate businesses.
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I agree that the Spanish property portals which focus primarily on local buyers are suffering the most right now. Thanks to its ludicrous over-development of recent years, Spain has 1 million excess properties on the market, and the highest rate of unemployment in Europe. As pundits predict that Spain will be one of the last European countries to emerge from recession, it doesn’t take a genius to work out that Spaniards who are willing and able to purchase a home will be in short supply for the foreseeable future.
The leading two national portals (Idealista and Fotocasa) have made some effort to appeal to foreign buyers in an attempt to bolster their revenue streams. Foreign buyers, however, traditionally account for just 10% of the national sales volume – despite what you read about Brits taking over the Costa del Sol.
The problem for established portals is that, even in a buoyant market, foreign buyers just don’t generate enough property sales or encourage sufficient advertising spend by estate agents to justify targeting them. There’s no way that the infrastructure of Idealist or Fotocasa – built to support a sizable national market – can be maintained on the revenue from agents willing to spend to reach the foreign buyer.
Another problem is that reaching the foreign buyer is expensive. Foreigners don’t buy property in the same way as local residents. Foreigners search Google for “Spanish property”, Spaniards search for “Apartment in Madrid”.
Foreigners typically don’t understand the intimacies of the geography of the country, the local languages or the different regional laws which can affect a property purchase. Add to this the lack of reliable data in Spain – no record of the actual price paid for houses, no standard way of locating a town on a map, let alone an individual property – and the cost of developing a portal which effectively serves the foreign buyer looks even less attractive.
Kyero.com was established in 2003 to fill this gap. It provides estate agents with simple tools to advertise properties in English, Spanish, French, Dutch, German, Danish, Italian, Portuguese and Russian. More importantly, because it was designed with foreign buyers in mind, Kyero.com has created data to address how they buy property in Spain. For every town in Spain, a buyer can find it on a map, see which airports are nearby, see local schools, view the trend of average house prices, see pictures of the area and see average weather information. All of these data sets are taken for granted in other parts of the world – yet there are hardly any sources for them in Spain.
While British and Irish buyers have traditionally represented the majority of foreign buyers in Spain, today it’s the Russian, French and Dutch buyers who have the purchasing power. Over 60% of visitors to Kyero.com use a non-english version of the portal and, despite decidedly tough market conditions, Kyero.com will post solid revenue and profit for 2008.
Of course, there are fewer foreign buyers for Spanish property today compared to a year ago. However, in the face of a depressed national market, estate agents in Spain are making sales to foreigners at the moment. As liquidity of credit returns to these buyers – perhaps two years before Spanish buyers – it’s a trend which looks set to continue.
Dear Martin,
Thanks for your post, it’s quite interesting and I agree with you in most of your comments.
You may know that there are other property portals having relations with other countries, in fact and for example, I could see yesterday the new international reference of yaencontre.com.
Good luck
Ernesto J. Plaza