 "Domestic brokers eye realty advisory biz to shore up revenues")
Despite the slump in real estate sales, domestic brokers are bullish on the real estate advisory business. Motilal Oswal Financial Services recently entered the space to help rich clients identify properties in Mumbai and Delhi.
“We have a gamut of financial products such as direct equities, mutual funds and PMS (portfolio management services) in our portfolio, and real estate is a logical extension,” said Ajay Menon, chief operating officer of the company.
Domestic brokerages such as IIFL, Anand Rathi, Karvy, Way2Wealth Brokers and Geojit Financial Services had entered the space in 2010-11 to supplement their income from core equity broking operations, but have tasted limited success.
The advisory business is mostly targeted at high net worth individuals (HNIs), with a ticket size between Rs 50 lakh and Rs 2 crore. Motilal Oswal and IIFL, for instance, cater to HNIs with a ticket size of Rs 1 crore and above. Commissions could be anywhere between one and 1.5 per cent on transaction value.
The services involve identifying the property, doing due-diligence, arranging finances as well as legally vetting agreements. There could also be tie-ups for home loan offerings. Way2Wealth, for example, has a preferred tie-up with HDFC and Dewan Housing Finance to offer loans at concessional rates.
“Given the market turbulence, it is important for brokers to offer all asset classes under one roof. The aim is to corner a greater share of wallet since 90 per cent of assets are invested in realty,” said M Shashibhushan, chief executive officer, Way2Wealth Brokers. “While realty sales are down, the need for advisory has risen in the past few years.”
Although absolute numbers are not available, real estate advisory still makes up a small portion of broking revenues. IIFL set up its advisory business in 2010 and does 3,000 to 3,500 transactions in a year. But, the revenue contribution to the overall broking piece is minuscule, according to Saurabh Gupta, fund manager, IIFL Realty. Way2Wealth, on the other hand, says its advisory business could reach eight to 10 per cent of broking revenues by the end of the next financial year.
Geojit, which wanted to roll out its property services division across major south Indian cities, still caters only to clients in Kochi.
According to Gupta, the advisory business has a long cash cycle as it can take between six months and a year for final payments and commission to come in. “One has to invest in the business for four to five years before it becomes self-sustaining,” said Gupta.
Brokers have been struggling as margins have shrunk, owing to the increase in low-yield options volumes, about 80 per cent of total market turnover. In 2007-8, options volumes contributed only a 10th to total market turnover.
Intense competition among brokers and proliferation of discount brokerages have also been key in driving down costs. For the cash market, rates vary between 10 paise and 30 paise for delivery-based trades and below four paise for intra-day trades. Charges in the options segment are Rs 20 to Rs 50 for each lot.
DOING A REALTY CHECK
- Brokers have entered the real estate advisory space to supplement income from core broking operations
- IIFL, Anand Rathi, Karvy, Way2Wealth Brokers, and Geojit Financial Services entered this space in 2010-11
- Services involve identifying the property, doing due-diligence, arranging finances and vetting agreements
- Real estate advisory still makes up a small portion of broking revenues
