Cutting costs to manage
Rising interest rates, slowing demand from mainland buyers and moves by the Hong Kong government to cool down the overheating housing market earlier this year are putting increasing pressure on real estate agencies. Faced with falling profits, management needs so respond. What steps can they take to keep their organisations afloat in such an unstable market?
"First of all, you need to cut costs," says Brian Tsang, managing director at Century21 Alliances Realty. "You need to stop expanding. You need to stop advertising. And when some of the office space becomes vacant because someone is taking a holiday or leaving the company, you need to stop renewing the contract for that space."
Advertising and rent are two of the most expensive elements for a real estate agency, and these can be cut when business is slow. Some things, however, simply cannot be cut. Certain functions are vital to the smooth running of an operation.
"You can't cut back on administration or marketing," Tsang says. "These need to be maintained. The back office also needs to be kept."
In terms of staffing, however, some problems solve themselves. Sales agents, for example, have very low salaries. Their income is derived primarily through commissions. So if they don't make any sales - or their sales volume is insufficient to makes ends meet - they will usually hand in their resignation and look for work in another industry.
"If sales agents don't make enough income, they will leave the industry," Tsang says. "They have a very low monthly salary. It is more like an allowance. If they aren't earning enough commission, they will leave the company and find another job."
Not all sales agents, however, are ready to throw in the towel just yet, regardless of how difficult their situation has become. For those that want to stick it out, Tsang has some advice on how they can boost their commissions in a lacklustre market.
"They should work harder," Tsang says. "They should come to the office earlier. They should make more outgoing cold calls - this will help. They should do more groundwork."
Sales agents should also spend more time doing the rounds by checking out properties and talking to their clients.
"They need to make more visits to the properties that they are focusing on," Tsang says. "They need to talk to the owners and the landlords. They should also consider focusing more on the leasing side."