Cashing in on China's hunger for Australian real estate

Investorist founder Jon Ellis. Source: The Australian.

Selling properties to overseas investors is big business in Australia. The Foreign Investment Review Board approved $51.9 billion worth of investment into the real estate sector last year, and $19.7bn was poured into the residential real estate sector.

There is a whole ecosystem of players in the sector, from big property developers to suburban real estate agents, benefiting from the foreign appetite for Australian bricks and mortar. The booming sector has also inspired many internet entrepreneurs who are keen to sell Australian properties -- mostly off-the-plan new apartments -- to overseas buyers.

Jon Ellis, the founder of Investorist, is one of them. He started the website three years ago and it went live last year. Investorist has more than 200 off-the-plan apartment projects listed, worth about $5.2bn. Ellis says he has more off-the-plan projects on his website than realestate.com.au, the most dominant property sales platform in Australia, which is majority-owned by News Corp Australia, publisher of Business Spectator.

However, unlike other property sales websites such as realestate.com.au, Investorist is not a business-to-customer site. It is only open to property developers, real estate agents, financial planners and immigration agents. Individual buyers cannot access the site.

“We are purely business-to-business. We don’t have a consumer-facing side. We have a lot more information on properties than other sites and manage transactions on our site too,” Ellis says. “We are more akin to a very large project marketing agency than an off-plan property site.”

Overseas buyers play an important role in the success of Ellis’ venture. Though overseas agents only account for one-third of Investorist’s total users, their transactions are responsible for about 50 per cent of the total revenue. The company is planning to open two offices in Shanghai and Kuala Lumpur to better look after its clients.

The key to this difference between Ellis’ ventures and other sites lies in his understanding of the market dynamic and overseas buyers’ behaviour. He thinks the whole business-to-customer model is deeply flawed. “I would say no [business-to-customer] platform selling Australian properties to mainland Chinese can ever be successful. The reason I say that is the power is not with [the] platform, the power is with advisers and intermediaries,” he told China Spectator.

The reason is simple and compelling: the tyranny of distance. For overseas investors who want to buy in Australia, they are likely to turn to realestate.com.au or the international section of Soufun, China’s largest property portal, if they are seasoned investors with good local knowledge.

But that is unlikely to be the case for many more people who want to buy properties here. Ellis believes that if you are a Chinese national who is not familiar with the Australian market, it is unlikely that the potential buyer is going to begin an unguided self-search for off-the-plan properties.

“Your search will be guided by experts and local experts in your country,” he said.

We can perhaps draw an interesting comparison here between the real estate sector and Australia’s lucrative international education industry. China is the largest provider of overseas students to Australia, accounting for about one-third of the market share.

Like the real estate industry, the flow of students is to a large degree determined by educational agents’ recommendations. Educational agents control 80 per cent of China's higher education sector, due to students’ unfamiliarity with Australia’s education system, according to Victor Huang of OzStudy Group, one of the largest Australian-based education agents.

Meanwhile, Investorist has multiple revenue streams, such as listing fees from property developers, real estate agents and financial advisors, and transaction fees. Ellis also licenses his software to large real estate agents for $4000 a year. His company has been expanding by 50 per cent every month since January and he is targeting $2.5 million in revenue this year.

However, it has not all been smooth sailing for Ellis since he started the project three years ago. He initially designed his platform with developers in mind, but when he took the product to the market, he realised the true value of what he had built for agents and advisers who wanted to access stocks. Since then he has been building more tools and functionalities for agents and advisers, who have the market power in the industry.

Ellis, who once worked for the property development giant Mirvac as a marketing manager, describes the evolution of his business as a "very slow burn".

"I didn’t have a light bulb moment in the shower like most online entrepreneurs do," he said.

And as for the controversy and the intense media focus on overseas buyers and Australian real estate, Ellis says the debate is “completely misguided”. He thinks foreign cash is crucial to keep the off-the-plan market buoyant when banks rarely loan out more than 15 per cent transaction value to any development.