Is Property Group-Buying Bullshit?

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To some people, group-buying sites like Groupon and Living Social are as deadly addictive as Justin Bieber jingles to giggly prepubescent girls. I know this firsthand because my wife is a bona fide deal sites junkie. Her bedtime reading habits have shifted from trashy housewife novels and teenybopper magazines to “deals of the day” email spam from the twenty gajilion group buying sites that she has subscribed to. Hubby, look at this Kitchen Aid thingamajig! Now only RM2,000 online! Oh, my!

Given the popularity of the group buying and online flash sales sites these days (their dodgy business models notwithstanding), it’s therefore not surprising that there are enterprising types out there who would try doing the same for property. In fact, there have been at least two fairly high profile attempts that we have seen so far in this country, and as far as I know, the results have been rather underwhelming.

Last week one of these companies came over to see me at the HackerHub, and I was told firsthand that they were abandoning the group buying concept, turning itself instead into a PR firm. I was somewhat gutted by this because I was rooting for them – not because the company’s founders were my buddies (I didn’t know them), but I had wanted the “group buying for property” idea to work.

Now first let me clarify something here. Just for the record, and for those reading GoodPlace for the first time, I find property gurus and their hare-brained schemes as despicable as they come. But we are not talking about gurus here. What they do is a special case of group buying where the guru followers would pool their money and buy whatever their guru tells them to (in bulk).

Instead, what I am addressing the generic case where the group buying opportunity is open for the general public. In short, we are talking about a “Groupon for property“, not a private investor’s club where people pay $997 a year to join.

Here’s Why Property Group Buying Can Be A Good Idea…

I know what I am going to say next will piss off some people, but then again, I own this blog, and I can say whatever I want because I am not beholden to anyone. Recently the group buying concept has taken yet another bad rap with the agent association head honcho Siva Shanker firing the latest salvo in a BFM podcast.

I have a lot of respect for Siva, and we both share the same distaste for gurus and the snake oil scams that they pull. However, there were a few points he raised in the podcast that I couldn’t bring myself to agree with.

For one, Siva didn’t have a single good thing to say about group buying. On the contrary, I think that group buying can be hugely beneficial to the home buyer – if done properly and transparently (this is key).

If we look at the consumer group buying vertical in totality (Groupon, Ensogo, etc), it’s obvious that the consumer is the biggest winner in the whole deal (pun intended). With these deal sites, consumers get wider choices AND cheaper prices (sometimes as drastic as 80-90% off retail). From what I can tell, not a whole lot of merchants benefit from these deals (and there were businesses which went kaput because they were forced to sell in large volumes at a loss). This may surprise some people, but the deal sites (as a business) are not doing too well either.

As any freshman economics major would tell you, prices are a function of supply and demand, and whenever there’s an aggregation of demand, prices fall. What the deal sites effectively do is to “aggregate” demand to increase the buyer’s negotiating power over the supplier, resulting in cheaper prices.

Welcome To The Free Market

Perhaps it goes without saying that in the Malaysia property industry, the developers hold the pricing power. This should not surprise anyone as the supply of homes is concentrated among a smaller number of developers when compared to buyers. Additionally, there have been further consolidation among developers (UEM acquired Sunrise in 2010; SP Setia may merge with E&O and Sime Darby; PJ Development with OSK Property) which means that this concentration of power will only increase.

With the smaller number of developers controlling the bulk of supply of new homes, pricing is getting quite inelastic these days. Given rising material and labour costs as well as the impending GST come April, profit margins will get kicked down the curb unless the developers do the unthinkable (*sarcasm*) – raise the prices.

If you’re wondering why prices of properties are still stubbornly on an upward trend despite significantly lower transactions this year then this is the reason. The smaller number of suppliers (i.e. consolidation of developers who are already usually working in a cartel-like environment by default) vis-a-vis buyers mean that they (the developers) have absolutely no (economic) incentive to lower prices.

Still, don’t get me wrong – the developers are not to blame in this scenario. They are a business with the profit motive as their raison d’être; social responsibility is secondary to making money. And understand that this is not a bad thing. It’s just how the free market works.

Let’s Just Put Them All Behind Bars

Now there will be those who will scream bloody murder and want the government to do something about it (sell cheaper or go to jail!). Indeed, many are of the opinion that properties are too important to be operating in a free market with minimal regulatory intervention. After all, the roof above one’s head is human necessity which is as fundamental as food and water.

I don’t want to sound like a Ron Paul-worshipping, Ayn Rand-quoting libertarian nutcase, but appealing to authority to solve problems in the economy is like asking the fox to guard the hen house – it’s stupid and counterproductive. I’ve never been a fan of top-down regulatory enforcement because we have seen again and again that free market forces always work things out for the better – but only in the absence of government intervention. Protectionism may be popular in the short-term, but is inevitably harmful in the long run (cough, Proton, cough).

And as such, I don’t even want the government to throw the proverbial book at those scummy guru/investment club types because all of them usually implode after a few (two?) rounds of scams with the buyers losing their shirts. You heard me right – “investors” (snigger) who participate in those schemes deserve to lose all their money, and then some. Remember – you lose money only when you are greedy.

Now given that it’s not illegal for developers to consolidate their powers and increase prices, and, it’s against the spirit of laissez-faire for the government to step in and arbitrarily stop the price increase, there’s only one natural solution to this conundrum…

To bring down prices, home buyers must aggregate their buying power.

Group Buying Is Not Bullshit… It’s The Home Buyer’s Next Best Bet

There’s absolutely no reason why a “Groupon for property” can’t exist. None. And given that the developers yield so much pricing power in the industry, property group buying sites might just be the platform which home buyers need to aggregate their buying power to balance out the developer.

Now I’ll need to further qualify my statement above as it does not extend to the schemes peddled by property gurus through their investment clubs and weekend seminars. A scam is a scam, and these snake oil peddlers don’t get a free pass from me.

So far, the public property group buying sites in Malaysia have been reporting rather mixed results. Like what I have mentioned earlier in this article, one has thrown the towel and turned into another PR vendor. The other is, of course, iProperty’s Buyers Club.

Now obviously I am not privy to iProperty’s business plans and inner workings, and what I know is what’s already shared publicly. For example, here’s a video on YouTube of their big boss man talking about their group buying business at a seminar end of last year. Amusingly around the 8:10 mark, he said that he was proud that they’ve done a terrible job at it (lolwut?) although they have had sold some 50 apartments online up till that point in time. (I don’t know what his expectations were, but my gut tells me that he wanted to do better.)

And what’s obvious to me now is that there is a screaming need for a group buying platform which delivers its core promise – cheaper prices for home buyers. There’s already a couple of early entrants with a number which has bitten the dust… and so the market is still wide open for now. So, for you enterprising types looking for a startup idea with huge upside, this might appeal to you – but only if you’re unfazed with sticking your nose into a hundred ton behemoth like iProperty. 🙂

About Khai Yin

When I am not writing for GoodPlace.my and helping my readers find properties though the DealMatcher service, I spend time doting on my three kids: Wenyi, Qinyi and Eian. My personal stuff, some published essays and contact details can be found at khaiyin.com

Comments

  1. Dear Khai Yin,
    Im glad im reading this because im planning to pool 6 or 7 friends to buy property soon. What would you think is a good discount to negotiate with the developer? I was thinking 10%..
    Does that sound too steep?

    Thanks..

    • Jay: there’s nothing fixed in stone, but you’ll have more bargaining leverage depending on how many units you want vis-a-vis the developer’s take up. Whoever who can walk away from the deal has got the bigger leverage.

      No rule of thumb as far as the quantum of discount goes – it really depends on how “desperate” the developer is.

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