CENTRAL FEDERATION OF FINNISH REAL ESTATE AGENCIES:
2010 a good year for the industry

FINNISH REAL ESTATE BUSINESS LOOKS AHEAD TO 2011 WITH CONFIDENCE

If the current trend holds up, 2011 may prove to be a fairly positive year for real estate agencies. According to the business cycle survey carried out by the Central Federation of Finnish Real Estate Agencies KVKL in January 2011, 96 per cent of respondents expect the number of listing agreements to remain at the same level as the year before or even increase. The same optimism extends to the development of home sales.

“Real estate agents share great confidence in an increase in both listings and sales. Turnover and profits are also expected to grow. Another common trait seems to be a belief in a steady and/or increasing trend in housing prices. All these considerations play a part in how the real estate agencies perceive their own business potential,” says Jukka Malila, CEO of KVKL.

Nearly 50 per cent of the respondents to KVKL’s survey expect their sales to increase by over five per cent, if not more. The number of optimists is greater than the year before. Over one half of the respondents are of the opinion that the work load in the real estate business has increased year-on-year.

Year 2010 was also positive for the industry and exceptional in the sense that sales remained brisk and steady throughout the year. Usually there two or three months every year when things slow down. Last year this did not happen. The financial performance of the players in the real estate business is directly proportional to the volume of home sales, as close to 90 per cent of the revenue is generated by commissions.

Fundamentals sound

Consumers’ confidence in their own finances is currently high. Interest rates have remained low, although a slight increase is foreseen towards the end of the year. Another factor important to the real estate industry is that home buyers' confidence in real estate agents as an expert in housing transactions is strong.

“From the point of view of housing sales, the fundamentals of our society are all as they should be, and this boosts optimism. Consumers take a great interest in home buying and housing in general. Migration to growth centres and urbanisation continues. These are important factors that will enhance the business in the future as well," Malila says.

New housing production that regained momentum after the recession has brought new housing options to the marketplace and will continue to do so and boost home sales: the former residence of a person buying a new apartment makes an ideal home for somebody else. However, the volume of new housing production is far from satisfactory, especially in the Helsinki area. There is a lack of small units in particular.

Additionally, the profitability of the real estate business will improve with the increasing turnover and number of listings, a view shared by 85 per cent of the respondents to KVKL’s survey. Compared with the previous survey, the replies suggest improved financial performance. But business is not as promising for everyone: approximately ten per cent of agents responding to the survey reported losses.

At the current point of the business cycle, recruitment is active. Agencies are hiring new staff to replace those who are moving on. When things work out well, recruitment of seasoned agents may also help increase the market share. In the aftermath of the 2008-2009 recession, the total number of people engaged in this line of business fell to about 4,100 but since then the trend has been reserved with the total number now approaching 5,000.

Strong growth figures

According to Statistics Finland, slightly over half of the agencies were on a growth curve in July-September 2010. During the first quarter of 2010, turnover grew by 21.2 per cent year-on-year. From April to June, growth was over 13 per cent and from July to September over 4 percent compared with the equivalent periods in 2009.  Statistics on the last quarter of October-December 2010 are not yet available. Based on closing figures, KVKL estimates the growth during the last quarter at 3 to 5 per cent, suggesting more or less the same growth rate as achieved in the third quarter. On the whole, the average growth of the real estate industry in 2010 was around 10 per cent. “We’ll receive the exact figures from Statistics Finland early this spring, but it would appear that year 2010 was among the five best periods in this millennium in terms of growth in sales”, Malila says, pointing out that 2008 was the only year in the 2000s to show a decline in turnover – then the drop was 8 per cent.

The industry statistics show that growth is driven by firms of different sizes – depending on the business cycle. For example, since the third quarter of 2009, the positive movement in turnover was mostly due to medium-sized agencies employing 5 to 20 people. By contrast, the biggest growth impact during the third quarter of 2010 was made by small firms with fewer than five employees. In statistical terms, we can talk about a trend when the same development continues over several quarters. The review also indicates that more than half of the agencies experienced growth during the third quarter of 2009.
Overall, competition is felt to be intense in the real estate business. In January, 86 per cent of the respondents were of the opinion that the competition had remained unchanged or slightly intensified in recent times. There is a no lack of new entrepreneurs and contenders. As the initial investments required for starting business are fairly small compared with many other lines of business, the entry threshold is fairly low and increases competition.

“Creating a successful real estate business with long-term prospects is no means an easy feat: it calls for hard work and a customer-responsive and professional approach. The real estate business is a diversified service profession that requires a range of customer service skills, qualifications and a professional code of conduct based on trust,” says Malila.

Text: MATTI VALLI

Additional information:

Jukka Malila
CEO, Central Federation of Finnish Real Estate Agencies KVKL
Central Federation of Finnish Real Estate Agencies KVKL
Runeberginkatu 5 B
 FI-0 0100 Helsinki, Finland
Finland
jukka.malilvkl.fi
www.kvkl.fi
+358-50-5112100