Real estate goes virtual

Imagine a world where people can buy houses online. A world where every part of the transaction, including receiving a bond, is carried out on the Internet and via e-mail. No, these aren`t the opening lines of a new Whirlpool appliances ad, complete with glitter-adorned models and swirling graphics. It`s a description of a developing trend in today`s residential property market.

Traditionally the property sector has been fairly low-tech, with the typical buyer or seller interacting face to face with an estate agent who facilitates a sale or who takes prospective buyers on tedious tours of potential new homes. The buyer then has to spend time dealing with a bank and attorneys. However, real estate has quietly gone into real-time. Now homebuyers can search for their dream house on the Internet and even apply for a bond and buy the home online once they find it.

Granted, this is still not the norm. The Internet may have revolutionised many forms of buying and selling, but according to current estimates only about 1% of purchasers buy their homes online. But many industry participants believe the use of online channels, while unlikely to completely replace the desire to physically view property, will increase.

SA`s online property industry has grown rapidly over the past few years, not just in terms of market size, but in the number of industry participants in the form of mortgage originators, property "classified ad" Web sites, real estate portals and the like. There are hundreds of such sites, ranging from small players to the larger groups like Pam Golding, Seeff and Remax.

Sites range in complexity from simple classified advertising to sites which offer services such as three-dimensional tours of houses, specific searches based on price, location, size, facilities and so on. Many sites go beyond traditional property advertising, offering services including advice, bond calculation and even links to online bond applications.

David Rogers, MD of real estate network Homenet, says going online has been of benefit, with the main driver being interest from overseas. "The ability to be able to look at different properties, see floor plans and get a whole lot of information about the property has really only been possible because of the Internet."

Agencies initially doubted the Internet was a medium through which they could handle purchases. "Now that it has proved itself, I think people are seeing it more and more as an opportunity to deal with a different range of clients," says Rogers.

"So it very much has made it possible for a wide range of agencies around the country to deal with foreign buyers without necessarily having to deal with them face to face. It`s even made it possible for us to have had a number of sales where the person has actually purchased the property sight unseen, based entirely on Internet information and obviously e-mail communication."

The Internet is the future of property advertising.

Colleen Louw, estate agent, Homenet Pretor Residential

Even print publications like Sunday Times Property have seen the value of taking property advertising into electronic communication channels.

"The combination of print and Web solutions is long overdue in residential property advertising," says James Gibson, operations manager of Sunday Times Property. Its Web site offers comprehensive information. Home-seekers simply search the site with either a reference number found in the print guide or by location to view a photograph and other details.

"The Internet is the future of property advertising," says Colleen Louw of Homenet Pretor Residential in Centurion. She points out that using sites like Sunday Times` online offering enables agents to reach new markets as opposed to advertising only in the areas where they physically do business or in the trade press. Neil Card of The Proper Team in Weltevreden Park agrees. "I`m on the border of the north and west Rand but now I can reach both markets without splitting my advertising."

Rogers says Homenet`s remote offices have found the Internet invaluable in expanding their market. Citing Port Alfred as an example, he says: "Typically in that sort of holiday type environment they have a lot of people coming down and they obviously spend a bit of time in the area and have a look around, but they often don`t want to spend time going house hunting when they`re on holiday. So what they tend to do is they will have taken note of a couple of places and then will want to continue doing their investigation on the Net and via e-mail. So in some of those remote locations it can be quite a boon to them to be able to market property to non-residents."

Internet technology is certainly helping many estate agents offer a more scientific service. More than 800 estate agencies have signed up for the South African Property Transfer Guide (SAPTG), developed locally by Knowledge Factory. SAPTG is a Web-based application that provides subscribers with information from the Deeds Office regarding all property sales in SA.

The system targets estate agents, valuators, financial institutions and property developers, with its primary aim being to supply estate agents with credible information when they present to their clients.

Jose Rodrigues, chief customer officer at Knowledge Factory, says the system uses deeds data and combines this with other information to provide users with market intelligence.

The SAPTG Web site features a search option called computer-assisted valuation, which supplies detailed information about a property. After a physical address is typed in, its location is graphically represented on a detailed cadastre map. Summary information, such as the number and total value of properties transferred, as well as the highest, lowest and average value of properties in the street and suburb, is displayed. Closest amenities and their distance away from the property are also shown. The database also provides details on the 20 closest properties transferred and values to the one selected. The property transfer option reveals data on what properties values were sold for, the buyer and seller details, date of transfer, erf number and name of the financial institution holding the bond.

"SAPTG is helping improve the standards of the real estate market," says Duane Butler, manager of property products at Knowledge Factory. "It provides property market agents with an easily accessible solution that has current and historical deeds information dating back to 1993. This allows them to value property accurately and obtain pricing trends in identified areas."

Rodrigues says the fact that SAPTG has found a subscriber in PrivateProperty.co.za means that private buyers and sellers now also have access to that information, which empowers them by allowing them to make valuation decisions without the assistance of a third-party, such as an estate agent.

PrivateProperty.co.za is a prime example of how the Internet can be used to empower individuals. The site allows homeowners to sell their property without getting an estate agent involved, which means no sales commission is payable. It provides an online bond application, bond calculator, and the SAPTG service, allowing sellers to determine a reasonable price for their homes. PrivateProperty.co.za acts merely as a marketing and sale facilitation service provider, charging only a one-off listing fee. Bond Net is another site that places more power in the hands of the consumer, allowing bond applicants to have banks vie for their business.

Technology is also playing a significant role in another area of the property industry: mortgage origination. Octagon Group MD Greg Brill says although the Internet has revolutionised many forms of buying and selling, it is not yet the ideal one for buying a home.

"Currently, only 1% of purchasers buy online, mainly because people still want to interact with other people, especially when considering the acquisition of an expensive and very personal investment. The advent of the mortgage originator is based on this principle. Using knowledge of the industry and extensive experience working with the originating banks, mortgage originators can negotiate personalised deals for their customers, while saving the banks money on in-house sales teams."

Octagon Solutions is a software provider with a secure point of contact that links the banks, credit bureaus, deeds offices and various other information sources in a secure environment. Brill says technology, while not as visible to the home buyer, is proving a huge enabler at the back-end. IT solution providers have developed software products to integrate seamlessly with the various banks` software systems. The mortgage originators can use these products to capture home loan applications easily while interacting with the potential buyers. This adds value to the banks, as they don`t have to recapture the information, as well as to the end-user, as electronic feedback can be ascertained quickly and the loan approved or denied within a couple of days.

Brill says many estate agents also find customised desktop software tools valuable. The estate agent can now instruct a transfer attorney to attend to a transfer on behalf of the buyer or seller and the progress can be tracked electronically.

The Internet offers the advantage of facilitating apples-to-apples comparison of loans, with rates constantly updated in real-time, and the results available to consumers anonymously at any time of the day or night.

Saul Geffen, MD, MortgageSA

In the US, online home loan applications account for a significant portion of new mortgages in the US, a $1.5 trillion industry, says Saul Geffen, MD of mortgage originator MortgageSA. The Web is expected to generate 20% of all mortgage loans in the US by 2010. Even now, some US originators get 8% to 10% of their production from Internet enquiries.

"The Internet offers the advantage of facilitating apples-to-apples comparison of loans, with rates constantly updated in real-time, and the results available to consumers anonymously at any time of the day or night," he says. "It is for this reason that although the number of loans closed online will be low, the Web will count for a significant share of the origination market."

There is certainly a good deal of competition in this space in SA. Players include Bond Choice, Bond Net, PCS Home Loans, Propvest and SA Homeloans and Wizard Financial Services, not to mention the banks themselves.

Bond Choice MD Mark Beckett says technology is playing an increasingly important role in the home loan application process, especially in the credit scoring and property evaluation stages. Homenet chairman Robert Ketjen says Bond Choice is the exclusive supplier of mortgage origination services to all 145 Homenet offices around the country. The agreement will, he says, put Homenet in a position to meet new bank criteria in mortgage origination.

"Supplying a simple lead to a bank is no longer enough," he says. "To qualify for the full benefits associated with origination, we must add value by handling more of the front-end processing of each application."

Graham Patterson, MortgageSA`s business and intelligence director, says the benefits of being online in the mortgage origination business include dramatically improved service levels and increased sales and productivity.

Says Geffen: "We have seen the number of people applying online steadily increasing over the past few months, with almost 1 000 applications and online interviews last month," he says. Applying online not only allows customers to remain anonymous, but many customers find face-to-face applications very stressful.

Patterson says the company specialises in securing and managing the entire home loan process and has placed more than 50 000 families into homes and facilitating loans worth more than R15 billion.

MortgageSA generates about 1% of its business from total direct marketing, and Patterson estimates that in regard to leads generated from online property searches and fulfilled by agents, the online market in SA overall would account for about 1% of residential sales. "In a review on the US mortgage industry they expect by 2010 to see 20% and 10% of consumers falling in pure online applications and online fulfilment respectively."

International financial services company LoanLink has also become active in the local market, making several acquisitions in the bond origination industry. Recently it bought a controlling stake in Wizard Financial Services, a controlling stake in real estate software specialist Octagon Business Solutions and 100% of Quantro Home Loans. LoanLink chairman Graeme Lupton says although the traditional bond origination business is the cornerstone of its strategy in SA, it will offer development finance, bridging facilities and agent commission discounting together with a loyalty programme.

Within the next two years or so, Patterson expects to see the emergence of "sophisticated sales support hubs" funded by a number of agencies. These hubs will provide the engine to support sales staff in revenue streams from selling houses, home loans, insurance, personal loans, home improvements, cars and so on.

Rogers does not expect the Internet to change fundamentally the way the property industry operates, although he believes that usage is going to increase.

I don`t see it dramatically changing the way things happen.

David Rogers, MD, Homenet

"I don`t see it dramatically changing the way things happen," he says. "The one advantage I think we ourselves and the banks and attorneys and so on are dabbling in but haven`t achieved the possible benefit, is just speeding up the process. If for example you see a house on the Internet, you go and visit it, you like it, the next step would be putting in an offer electronically. Whether you do it electronically or verbally or on paper through the agency, neither of those really take much time. But from there on in terms of the agents confirming the deed itself with the attorney, with the banks and that facilitating the whole conveyancing procedure, that to me is probably the next area where I think there`s room for significant improvement.

"By doing things electronically you`re avoiding the repeated capture of information and you`re able to disseminate that information very easily to a number of different parties. And then secondly just obviously the speed of transmission. Once an agent has for example captured something electronically he can then forward those details to the attorney for the attorney to deal with the bank who will then deal with the other parties and anybody else who may be involved in the transaction. That has the potential of taking days and weeks out of the process if everybody is compatible with it."

However, he says the issue of compatibility is one with which the industry is grappling.

"Certainly on the bank side it may be unfortunate that the industry hasn`t got together collectively and agreed on a common platform because I think that`s probably the thing that`s holding up things the most - that people are using different systems that are not always compatible and talking to each other, and it means you`ve still got these remnants of replication of capturing and replication of information transfer and so on. But I think it will come. It will herald quite a significant improvement in the registration of bonds and of the property transfer itself."

The property sector is only beginning to embrace all the potential of the digital world. Although online transactions are likely to remain only a small part of the industry`s overall business, they are set to become a very important focus area.