Falling profits and reduced commission in financial products spur move.
A number of Indian stock brokerages have forayed into real estate broking as profits from their core equity broking business fall and commissions from the distribution of financial products shrink.
Mumbai-based IIFL (India Infoline) and Anand Rathi Financial Services have got into commercial and residential real estate broking in the last six to nine months. Hyderabad-based Karvy Group has revamped its real estate broking business in the last four months due to good demand from clients.
“The real estate broking space is highly unorganised. There is an opportunity for corporate broking firms in this business,” says CJ George, managing director of Kochi-based Geojit BNP Paribas Financial Services, one of the first stock brokerages to start real estate broking in February 2009. The firm’s division Geojit BNP Paribas Property Services is providing commercial and real estate broking in Kochi at present and plans to roll out in other major South Indian cities by the year-end.
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Profitability of domestic stock broking firms has come under pressure due to a fall in cash market volumes on muted participation from retail investors and a rise in the low-margin options segment in the overall market turnover.
The broking fees in equity trading have also come down due to stiff competition and increased use of new electronic facilities that allow brokers to offer direct market access to their clients to the exchange trading system through their infrastructure, without manual intervention.
Most Indian stock broking firms also distribute mutual fund and insurance products, wherein commissions have fallen on account of the ban on entry load on mutual fund schemes and new guidelines for unit-linked insurance plans (Ulips).
In such a scenario, real estate broking, where commissions range from 0.50 per cent to 2 per cent of the property value in bigger Indian cities, provides an additional source of income to stock brokerages, say their executives.
“It is an added service we have started. We are leveraging on our existing client base and distribution channel,” says Balaji Raghavan, head – real estate practice, IIFL, which started real estate broking in August 2010. As of now, the Mumbai-based firm’s unit, IIFL Realty, is providing commercial and residential real estate broking to all its clients across all segments in cities like Mumbai, Pune, Delhi, Chennai and Bangalore. The plans are to expand in 12-15 more cities this year, Raghavan says.
Karvy Realty, part of Karvy Group, offers largely residential real estate broking services to its clients across all segments in the country.
TARGETING WEALTHY CLIENTS
Aided by private banking and portfolio management arms, the equity brokerages are increasingly focusing on their wealthy clients, who are turning vary of investing in stock markets due to increased market fluctuations.
Says Jugal Mantri, group CFO at Anand Rathi Financial Services: “A majority of high net worth individuals (HNIs) have been away from the capital markets in the last two years. But, they are open to investing in real estate.”
“Real estate brokers just help in identifying the property. Besides doing this, we provide end-to-end services like doing the due diligence of the property, arranging the finances as well as legally vetting the agreements,” he adds. At present, Anand Rathi is offering both commercial and residential real estate broking to its clients in Mumbai for properties valued above Rs 5 crore.
“Very few people invest Rs 3-5 crore in insurance products but that is easy in real estate. It is going to happen more and more in real estate. The product is risky but has attractive returns, so people are thinking about dabbling in real estate,” says Amit Goenka, national director - captial transactions at global realty consultant Knight Frank.
“So far, they (stock brokerages) were focusing on securities. But after the fees were curtailed in selling financial products, they are increasingly turning to alternative assets (like real estate),” he adds.
But, some like Sanjay Dutt, chief executive officer, Jones Lang LaSalle (India), argue that stock brokerages venturing into property broking is not a sustainable business. “It is not the core activity of these companies. Many banking companies have ventured into this business in the past. Have they really grown their managers professionally and become serious service providers? The answer is no. Do they provide integrated services in verticals such as residential, retail, office, capital transactions, property management? Again, the answer is no,” says Dutt.
Already, HDFC Realty, a unit of housing finance major HDFC, and ICICI Bank Property Services, part of ICICI Bank, are into the property broking business. The organised property broking segment is dominated by the Indian unit of the UK’s Knight Frank and DTZ, the US-based CB Richard Ellis, Cushman & Wakefield, and Jones Lang LaSalle, (JLL).
