While investors ponder the possibility and potential impact of ‘Brexit’ come the 23 June EU referendum, newly listed hybrid property agent Purplebricks is taking the UK by storm. Purplebricks has risen to be the 4th largest real estate agent  in the space of just two years and seeing revenue growth more than double year-over-year.[1]

 

Commissions generated by residential sales in the UK are estimated to be worth some NZD 9 billion a year. Purplebricks is applying already available technology to disrupt a well-established sector and answering customer calls for better value and service. It charges a flat fee for providing marketing services (as opposed to the traditional 1.0-2.5% of final sale price) with ancillary services provided as options, and claims to save typical sellers c.75% of the total cost of selling.

 

Central to its model is finding the right balance between serving clients online, available 24/7, as well as offline, through its growing stable of local property experts who attend to sellers in their homes and carry out marketing campaigns. The firm has no high street branches and its network of 170 agents are mostly self-employed (a shade of Uber?). This affords it compelling value proposition which it leverages in a national marketing campaign to promote its brand, services, and close the trust gap with prospects.

 

GOOGLE SEARCH TRAFFIC VS HIGH STREET AGENTS

 

Listing of properties has stopped being about high street shop windows some time ago as online portals, such as realestate.co.nz, Trade Me and rightmove.co.uk, consolidate as much as 90% of all listings. Purplebricks is taking this one step further to lower costs for the end consumer, and no reason why this will not work in Australia and NZ too.

 

‘Brexit’ is a risk but the UK does have knack for spawning interesting new business models: Asos; Ocado; Just Eat; Rightmove; to name a few. Of course, not all of them will work out as investments, but if Leicester City can win the Premier League, perhaps these aren’t such long shots?

 

Felix Fok

Portfolio Manager

Disclosure of interest: Milford Funds Ltd. holds shares of Rightmove, Trade Me and Purplebricks on behalf of clients.

Disclaimer: This is intended to provide general information only. It does not take into account your investment needs or personal circumstances and so is not intended to be viewed as investment or financial advice. Should you require financial advice you should always speak to an Authorised Financial Adviser.

[1] Market share metric based on the annual run rate of sell instructions received by Purplebricks from property owners.