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The disruptor making real estate digital

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As digitalisation continues to hit the high street, fund manager Mark Wright discusses how Purplebricks is navigating the carnage.

Digitalisation has forced the downfall of many once great staples of the high street. The likes of Debenhams and House of Fraser have been unceremoniously dismissed in favour of online,

e-commerce specialists such as ASOS and Boohoo. Retail has taken the brunt of the force of digitalisation, but the digital wave has affected all industries to a greater or lesser extent.

Residential real estate is an industry that has put up a valiant fight to digitalisation and in Q1 2019, online estate agents had a market share of just 7.6% in the UK – that figure is much lower in the more expensive London market.

Digitalisation is driven by younger customers who are more trusting in technology and find it easier to use than their older counterparts. Using retail as an example, the online fashion market is most popular with millennials, while the older Generation Xs are keener on traditional bricks-and-mortar stores. But millennials are only now beginning to join property buyer ranks and we should expect a correlated rise in the uptake of online estate agency use.

While the market share of online agents is still relatively small (7.6%), 76% of it belongs to Purplebricks, a company that is barley five years old, yet already a household name with 96% brand awareness. Purplebricks was not the first company to offer agency services online but has been the standout in the developing online real estate market. While the group sees some competition from peers such as HouseSimple and Yopa, the benefit of being in an as-yet unsaturated space is that competition only helps to grow the market, which may ultimately serve Purplebricks a bigger slice of pie in the long run.

Low personnel costs and a lack of bricks-and-mortar expenses means that fee per instruction at Purplebricks can be offered at a much lower rate than the traditional estate agents. While costs are low, customer satisfaction rates remain high owing to quicker sales and an excellent customer experience using the app.

Purplebricks has suffered in the past from rapid expansion and failed launches in Australia and the US, which hurt financially. But the company recruited a fresh-faced board with highly relevant experience in market disruptors, such as JustEat and Spotify, helping to steer Purplebricks away from making rookie mistakes. This, combined with leader Vic Darvey – who joined as Group CEO from MoneySuperMarket in January last year, makes Purplebricks an attractive proposition to investors.

While the digital revolution of residential real estate is still in its infancy, investors should be confident that the market has good growth potential, with Purplebricks continuing to pioneer new technology that provides a good service at low cost. The anchor of bricks-and-mortar stores will likely prevent traditional agents competing on cost, and if the online alternative can continue to provide quality service, it is hard to see how the high street estate agent can prevent itself from being the latest casualty of the digital revolution.

 

The views expressed are those of Mark Wright at the time of writing and are subject to change without notice. They are not necessarily the views of Seneca Investment Managers Limited and do not constitute investment advice. Whilst Seneca Investment Managers has used all reasonable efforts to ensure the accuracy of the information contained in this communication, we cannot guarantee the reliability, completeness or accuracy of the content. This communication provides information for professional use only and should not be relied upon by retail investors as the sole basis for investment. Seneca Investment Managers Limited (0151 906 2450) is authorised and regulated by the Financial Conduct Authority and is registered in England No. 4325961 with its registered office at Tenth Floor, Horton House, Exchange Flags, Liverpool, L2 3YL. FP19 355.

Seneca

Seneca Investment Managers is a long established boutique investment house, based in Liverpool, with a national client base. Investors range from institutions such as pension funds and charities, through to financial advisers, discretionary private client managers and personal investors. 

Where we differ from other providers of multi-asset investment products is in our ‘value’ based approach. This means we pride ourselves on the ability to identify and invest where there is both quality and unrecognised value.

Simply put, we create funds that combine stocks and shares in companies (equities) with fixed interest investment vehicles (bonds or debts) and a wide range of specialist assets such as property, private equity, specialist finance and infrastructure. We believe our multi-asset value approach gives us the edge in delivering the right outcomes for our investors.

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