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Adopting the franchise model

REAL ESTATE
By Kevin Oguoko | June 4th 2015

Hazen Properties is among the new real estate companies in Kenya. Its forte is property agency for listing of housing and commercial units for rentals and sale, which is the top money maker for many real estate agencies.

As a listing agent, Hazen Properties is doing everything by the playbook to make it big in the industry. Its current clients are developers owning some of the biggest projects in Nairobi, located in lucrative neighbourhoods with high sales turnover. They include the Sh1 billion Nula Apartments in Lang’ata and Everest Apartments in Kileleshwa.

Hazen joins a host of local investors, in to share in the profit that the ever-growing Kenya’s real estate industry has to offer.

These investors own even bigger projects and their presence is felt all over the country. What makes them special is their business model, which seeks to offer a branding solution.

They are known as franchise companies, and are owned by deep-pocketed local owners bringing the competition to already established agencies that have existed for decades, and threatening upcoming players like Hazen by using their generous advertising and branding budgets.

Branding

Franchising is the practice of using an established company’s brand name and their business model. The franchise pays the established company an agreed upon fee in exchange for using their brand name.

For the franchisor (the established company), this is a smart way of making money by having ‘chain stores’ across the world without the risk of investing directly in a business and environment they know little about.

Franchise real estate companies in Kenya that have come up within the last two years include Re/Max Kenya, from Re/Max - USA and Pam Golding Properties Kenya from South Africa’s Pam Golding Properties.

Re/Max-USA is the leading real estate brand in North America in terms of sales, while Pam Golding Properties is recognised as South Africa’s leading independent real estate group with numerous accolades from the International Property Awards and Superbrand awards since 2005. Their recognised brand names make them suitable for franchising.

The Kenya-based franchise companies claim to be more professional, and are in a better position to understand their consumers, owing to the solutions they have provided to the global market over the decades through their foreign partners.

Re/Max Kenya was launched during the last quarter of 2013. According to their website, the success of their business is founded on their global affiliation, the size of their local network of agents, and the highest-allowable compensation to their agents.

Owing to this attributes, some of the franchise’s clients include monied multinationals and members of the diplomatic and expatriate community who are familiar with the brand name (of the franchise) from their home countries.

And just like multinationals, to keep up with appearances, some of these franchises are located in Grade A office buildings in Nairobi’s high-end office nodes of Westlands and Upper Hill.

Their generous advertising budgets are dedicated to rationally-designed campaigns that run into millions of shillings, much more than what an average real estate company can spend.

“Now if when walk around town you will see billboards with pictures of agents on them. We started that trend that has been practiced for years by Pam Golding in South Africa,” says Shafana Rajani-Kanani, general manager of Pam Golding Properties Kenya.

One of Pam Golding’s advertising strategies is to promote their individual agents instead of the company as a package. This is done through putting billboards that advertise individual agents and their phone numbers.

When Home & Away visited the Pam Golding offices in Fortis Tower in Westlands, Shafana explained some of the benefits that accrue from their relationship with their global franchisor. Aside from getting regular reports from their South African partner, agents and directors get in-house training on how to handle their clients and source new ones through annual, joint trainings with other Pam Golding franchise companies all over Africa including Namibia, Botswana and Seychelles.

 Professional bodies

“Some agents don’t even know the difference between freehold and leasehold land,” says Winnie Njeri, director of Re/Max in an informal sitting with this writer.

Just like Re/Max, Pam Golding Kenya is keen on to have its agents qualified by a professional body like their franchisor does. The only problem is that no such body exists.

In order to be a real estate agent in the US or for Re/max-USA for that matter, one has to be registered with their State real estate commission. One is registered as an agent after completion of 300 class hours and sitting for the real estate broker exam.

In Kenya, for one to be registered as an estate agent - described as a person who ‘by way of business, negotiates for or otherwise acts in relation to the selling, purchasing or letting of land and buildings erected’ - under the Estate Agent Act of 1984, one has to be a member of the Institution of Surveyors of Kenya (ISK) - Valuation and Estate Agents Chapter.

 Qualifications

You require a four-year Bachelor’s degree in land economics to be a member of the Chapter, a longer task than the compulsory 300 hours (or less) of college-course units required in the US.

Tysons Ltd Marketing Manager Isaac Maira, says the question of the business model is only part of the equation.

He argues that real estate is not a ‘fashion trend’ or a ‘recipe’ but it’s all about who can sell units and who has the necessary professional skills to deliver this.

“Real estate agencies like Tysons have been around for years. We have strong, registered professional staff that ensure that our transactions above board. Most of them (franchises) are in the letting and selling business, just like the agencies with semi-qualified staff,” says Mr Maira.

“The foreign market is still very small in Kenya. As Tysons, we have sold a number of units to the diaspora and foreign market as we have extensive knowledge, are qualified and know our way around,” says Maira.

Franchising is not new in the country. Franchise stores and companies registering and popularly engaging in other businesses apart from real estate include Cold Stone Creamery, Domino’s Pizza and KFC.

In the Kenyan real estate industry, the top-tier real estate agencies are run by professionals registered by the ISK and AAK (Architectural Association of Kenya) chapters.

Companies such as Regent Management, Lloyd Masika and Tysons have in-house professionals drawn from real-estate-related professions such as architecture and surveying, who manage various aspects of the business.

“Franchising should be encouraged. Many of these real estate agencies are ran by professionals who decide to branch out years down the line after employment. One of the things I tried to champion in my tenure as Chairman of ISK was for professionals to have more business acumen beyond their educational background,” says Collins Kowuor, former Chairman of ISK.

Kowuor add: “Franchising provides them with a branding strategy solution. It would have taken them years to get their name out there had they used their own name and business model. Franchising is just smart business.”

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