Transcript of the interview about the Swiss property market from Tuesday, 15th of October 2019, between Hannah Wise from CNN Money Switzerland and Patrice Choffat, CEO and Founder of Bestag. (Redacted for language quality)
HW: How detrimental can a poor valuation be when you are trying to sell a house?
PC: Well, it’s very important to have the right valuation, because it’s going to be your only reference while negotiating and it’s very detrimental, because you will end up jeopardizing the potential purchase that you can do afterwards or the retirement that you are funding with that.
HW: Is there a potential impact also to the wider market, the wider property market as well?
PC: In principle no, because it’s just raising transaction costs, in raising actual cash out costs and in foregone proceeds of the sale, but in principle it’s not going to influence the bubble.
HW: And this is a big issue right now in Switzerland for sellers? Are they getting incorrect valuation?
PC: They are getting a lot of incorrect valuations because of valuation bias by the forces who are supposed to help them, such as real estate agents or banks.
HW: Would you go as far as to say that we’re in the midst of evaluation crisis?
PC: I don’t want to say it's a valuation crisis because it's been ongoing for years. But it's certainly a very poor state of affairs when compared to other countries that have more transparency on valuation, I would cite the US as an example.
HW: Okay, so what would lead to more transparency then?
PC: Well more transparency is being led by data analytics. We would expect the Swiss government to go on to more open data, which they are very reluctant to do now for property prices, but all sorts of startups help with data analytics for the property markets.
HW: And how could that impact the price of property in the future? Is all that’s going to happen is that sellers will potentially make more in their sell?
PC: I think sellers will make more in their sales and there will be less sales out of market price. Now the overall market price is really still determined by supply and demand, so low interest rates as you mentioned. .
HW: I know, but what we were seeing with this SwissLife report today is that 2/3 of families are looking to buy in the next decade. That’s a lot of demand.
PC: That's a lot of demand. But at any given point this is true, so that’s a little bit of a tautology unfortunately, because the cycle of sale is 15 to 20 years in Switzerland. It means that at any given point, any given property is going to be sold in the next 10 to 15 years.
HW: But given these figures I mean are we headed to a property bubble scenario? I mean, what's your positioning there?
PC: When we advise clients regarding a bubble, if the prices are very high, there's another thing to consider: are you going to buy and live in your property for long enough for the rent-interest differential to compensate you for the risk you are taking to hold a risky asset such as property?
HW: Do you think we need systemic change here in Switzerland when it comes to the buying and selling of property?
PC: I do think so. I do think there is a charge led by startups to bring transparency to the market and we need to support the government to make more data available. Right now the data is really owned by data brokers who get it from banks that they have a deal with or other providers.
HW: So are you disrupting the industry with this data analytics?
PC: We are disrupting the transaction industry in a great way because of the allocation of the transaction. Right now a property seller will choose their agent in an educated guess slightly-better-than-random way. If they chose a specialist agent or even a top 3 specialists agents with us, they would have a better chance to do a better sale quicker.
HW: But in order to work with you, an agent would potentially have to moderate their prices. There wouldn't be any incentive for them to to reach upper limits?
PC: The agents who work with us acquire business in a much shorter prospection time, so it allows them to actually lower their prices and remain just as profitable.
HW: So how sustainable is this business model then. I mean the swiss market is very very small?
PC: Yes, the Swiss market is small but we're still talking, depending on estimates, between 600 million and 1.5 billion in brokerage every year. So this is still a lot of money and these costs could be reduced.
HW: So just explain to us how, how you make money because if you can get agents on board where does your kickback come from?
PC: Well, the agents will give us a kickback. Imagine you are an agent, you’re spending 50% of your time doing the deals and 50% of your time prospecting. If that time prospecting is reduced dramatically, you can give a part of your provision to us and still be more profitable.
HW: But what’s in that for the client, for the seller? I mean really, how much value does that give me? I don’t care where my 30’000 in fees goes?
PC: So you want to have the best possible specialist because they will have the right portfolio of similar properties, they will have the right past performance to sell your house faster and at a better price.
HW: And how much business are you doing now?
PC: So we have launched the product 18 months ago. We are a 2 year old 5 person startup. We have been mandated by 50 property owners to sell their property, so far we have closed 12 deals, our revenues cover our salaries.
HW: What about other disruptive models are there because if you look international if you want to compare Switzerland to an international somewhere else, you could cut at the real estate agent all together which is happening in the UK right now.
PC: So, we believe most people who sell still want some human interaction, human advisory, because there's also topics such as mortgage and taxes on the profit made on a property sale, which you will want to get some advice on. But there are many different models in many different countries - in France our model is actually the leader.
HW: And just explain to me how you think the data analytics could translate into better prices and better service in the future. I mean it surely this isn't as far as it goes when it comes to data analysing.
PC: Well data analytics is making itself felt in any aspect of our life nowadays because resource attribution becomes much better and much more tailored. If you imagine Tom lives in Zurich spends all his time selling houses in Winterthur. Harry lives in Winterthur, spends all his time selling houses in Zurich. This is a lot of commuting and traffic time that is all lost. It's a waste for the general public.
HW: And that will be returned to the seller in in cost reduction you think?
PC: Yes it will, because if you have the competitive element, market rates actually go down. We peg our pay for performance formula to the market rate but when agents make more deals they ask for a lower rate so in turn this is money that is returned to the seller.
HW: So I ask you one final time then: How disruptive are you being within the Swiss market?
PC: I think and hope that we can be very, very disruptive, because a better allocation will mean more deals per broker and ultimately less brokers in the market. Less brokers in the market will mean a lesser sum of brokerage being paid.