Sotheby's realty arm eyes luxury market

HONG KONG: A surge in demand for luxury homes and apartments in Hong Kong has lured US-based estate agency franchise Sotheby's International Realty to enter the market.

Local property broker Samson Law Lai-choi, owner of estate agency Hong Kong Homes, has secured a 25-year master franchise agreement to develop the Sotheby's brand in Hong Kong. "Everyone knows the name Sotheby's," Law said. "We have already recruited 20-plus sales staff and aim to increase this to 40 within one year."

Local rivals said they were not in awe of their new big-brand international competitor.

"Hong Kong is a mature market. It will prove difficult for a newcomer to make an impact. It is going to be a tough job for them," said Joseph Tsang Hon-ping, international director and head of capital markets at Jones Lang LaSalle's Hong Kong office. "We had been approached by the US company for business co-operation opportunities a few years ago. But we did not feel comfortable with the business model."

Other property agents said they did not feel threatened by the newcomer. "We have more than 10 branches in the Mid-Levels and Island South. Can a company with only an office address compete with us? It will not be easy," Vincent Chan Kwan-hing, executive director of Midland Realty, said.

Louis Chan Wing-kit, executive director of Centaline Property Agency, said there was room in the market for more players, and new entrants would not affect its leading position. He said Centaline was responsible for settling some 25% of luxury transactions valued at HK$20 million (RM7.95 million) or above.

"We have established a very strong network of street shops and a database. That results in an operational cost of more than HK$100 million every month."

Data from Centaline shows there were 5,913 properties sold for HK$10 million or above in the first eight months. This represented an increase of 63.34 per cent compared with the same period last year. The value of properties sold amounted to HK$132.8 billion, up 78.85%. With commissions on luxury sales of 1% to 2%, sales in the first eight months were worth HK$1.3 billion to HK$2.65 billion for the agents.

Law, who also owns Proway, a company providing relocation services, said his contract with New Jersey-based Realogy Corp, which owns Sotheby's franchising rights, was signed in April but it will be officially opened next month. The opening was delayed, he said, because of lengthy negotiations with the franchise owner over differences in business operation between Hong Kong and the United States.

He said he would continue running Hong Kong Homes and Proway but looked forward to adding the Sotheby's franchise to his stable.

"We will not try to follow the approach of local agents such as Centaline and Midland and open street shops as it would not be easy to compete with them on this basis," he said.

Instead, he planned to build on Sotheby's high-profile auctions to market the firm's property services to wealthy clients.

"More than 60% of buyers at Sotheby's auctions are mainlanders. We will be allowed to set up a booth in the auction hall areas to market our service. That will help us reach out to the market," he said.

Law said there would be no conflict of interest between Hong Kong Homes and the Sotheby's franchise since the former would focus on leasing while Sotheby's would focus on sales. He declined to provide details of the total investment he would make to support the franchise.

The path to next month's opening has not been easy, Law said. "We had targeted to begin operating the business in July but were delayed because we were obliged to have a long negotiation with the franchise owner about operating styles in Hong Kong," Law said.

"For example, we wanted all photos of properties that we publish to carry a watermark to prevent other agents from using the photos and breaking our copyright over them."

But this is not the practice in the US, where an agent gets exclusive rights to market a property and then subcontracts the selling rights with others that share the commission if they sell the property, he said.

But in Hong Kong, vendors can appoint several agents to sell a property. They compete with each other and do not have to share commission, he said.

"There are differences in how the business operates and it took time to explain this," Law said. "Can we do it? Ask me again in three years and I'll tell you." -- South China Morning Post