OUTSOURCING – THE NEW NORMAL IN REAL ESTATE

What is Outsourcing?

Outsourcing is the term usually applied to “BPO” or Business Process Outsourcing, and generally means shifting a task or business process from an internal employee to a third party, either locally or offshore.

Technology advancements and cloud-based systems have enabled a more versatile workforce and an environment where a company does not need to have an employee sitting in the office to undertake a task or role.

The outsourcing industry is changing at a rapid pace, new and developing trends are starting to arise and what was once dubbed as “affordable overseas labour”, is now a billion-dollar industry supporting most businesses across the globe in one way or another.  It has become a key business strategy for both small and large business enterprises who believe in devoting 100% to their key business operations and outsourcing the rest to specialized vendors.

When outsourcing first started out, it was restricted to low-risk functions such as payroll processing and data entry.  Outsourcing was initially undertaken by the big end of town, banks and telecommunications companies.  Later, customer service operations were outsourced on a large scale and we saw the emergence of “Indian call centres”.  This trend brought outsourcing cost benefits to the forefront, and organizations started taking notice. Global companies who wanted to leverage the cost benefits of outsourcing started outsourcing high-end functions like IT services, healthcare and research services to reliable companies.  The quality of the outsourcing providers has grown dramatically.

While most companies across the industry verticals swear by the advantages of outsourcing, the outsourcing debate continues over its long-term sustainability. Outsourcing opponents argue that the flip side of outsourcing includes lack of quality control, lack of hold on the processes, and lower prospects of innovation. Outsourcing critics point out that rising salaries in outsourcing destinations   is taking the sheen away from outsourcing and thus it may not be as profitable in the long run.

Despite such perceived negative aspects, outsourcing has only continued to grow. In fact, outsourcing is now being embraced by organizations of all sizes and domains. From startups to large enterprises, outsourcing continues to be a tool of choice to gain competitive advantage in the business scenario.

Crunch business situations have only helped to build the case for outsourcing further. The last global economic crisis is the testament to the fact that businesses not only need to learn how to survive during a downturn, but also need to look at newer ways of overcoming weak economic conditions.

New shifts in technology ensure the entire outsourcing business is likely to grow further via the use of centralized technology. Some newer aspects of technology and IoT such as AI and automated chat bots are also likely to be unilaterally introduced in more outsourcing businesses.

Outsourcing in the Real Estate Industry

PieLAB have recently undertaken extensive research into the impact of Outsourcing in the Real Estate sector.

The real estate industry is facing challenging times with commission rates showing a declining trend in both property management and sales.  Lower cost, tech enabled business models are providing consumers with choices and forcing them to question the fees they pay.  This is resulting in increasing numbers of real estate agencies wanting to improve their operational efficiency and reduce the costs of their business model.

PieLAB’s research shows the real estate industry has embraced outsourcing both onshore and offshore.  Onshore examples include outsourcing of property inspections, accounting and bookkeeping, trust accounting, smoke alarm servicing, and even lead generation with the emergence of companies like Open Agent.

There is also a significant increase in the numbers of real estate agencies that are outsourcing labour to lower cost countries to reduce costs and often improve efficiencies.

What started as a trickle a few years ago has become a stream and looks like becoming a river.  The early adopters have been using offshore labour for a number of years and outsourcing has now become one of the buzzwords in the Real Estate industry.

Chris Rolls, Managing Director of PieLAB, who is arguably one of the pioneers of outsourcing in the real estate sector, began using outsourced labour in the Philippines nearly 10 years ago to streamline and systemise his business processes at Rental Express where he managed over 5,000 residential properties.   Chris has witnessed firsthand the team grow from one person to over 70 people who are now engaged by the new owners of Rental Express, Little Real Estate.

Cloudstaff, the company that employees many of the Philippine’s based staff for Australian real estate agents, has seen the number of staff servicing the Australian real estate sector grow by about 100% every year for the past five years.  That is, the number has doubled every year and will continue that trend in 2018.

Macquarie Bank included outsourcing in the recent Real Estate Industry Benchmarking Survey.  This extract from the survey confirmed that significant numbers of agencies would consider outsourcing.

Technology and cloud computing trend

In the past two years PieLAB have researched literally hundreds of emerging technologies that are set to become widely used in the Real Estate industry.  As more and more tasks are shifted to a technology enhanced process the opportunity to outsource this to an offshore operator becomes greater.

Cloud based platforms have become the norm and server-based software systems like REST and CONSOLE are endeavouring to shift to the cloud.  This has opened the door for nimble start ups to emerge with integration becoming the new normal.  Software must integrate via API’s to be accepted into the modern real estate software ecosystem.  This trend is enabling a shift to offshore labour to drive the software.

BPO operators have shifted from providing a person that you have to train and are now providing staff already trained in the popular cloud-based software providers.

So, what is motivating real estate agencies to outsource?

There are many reasons why a company may choose to outsource certain business functions. Research shows that the most common reasons include.

Cost cutting tool – 59%

Enable focus on core business functions – 57%

Solve capability issues – 47%

Enhance service quality – 31%

Critical to the business needs – 28%

Access to intellectual capital – 28%

Manage business environments – 17%

Drive broader transformational change – 17%

While cost continues to play a leading motivation in outsourcing, better focus on core business functions, capacity, service quality, robotic and cognitive process automation, cloud, and innovation are growing in importance as well.

What tasks are being outsourced?

As with the big end of town, outsourcing in the real estate industry started with the low risk, repetitive, manual tasks that could be done from anywhere using cloud-based software.  As the confidence in outsourcing grows companies are now proposing to shift entire departments offshore.  For example, some companies have shifted their accounts department offshore.  In property management the trend is to outsource all function other than liaising with the landlords and the tenant, and in some cases, those functions as well.

Some of the more common tasks to outsource in the real estate industry include:

  • Generating CMA (Comparative Market Analysis) reports
  • Prospecting
  • Data entry of client information
  • Sales and rental agreements / contracts
  • Research
  • e-mail marketing campaigns
  • spreadsheets and managing data
  • creating letters and word documents
  • bookkeeping and debt collecting
  • scheduling routine inspections
  • routine inspection reporting
  • processing applications
  • updating and maintaining company website
  • property marketing campaigns
  • social media campaigns
  • blogging and article writing
  • tracking stock on market
  • database management and creation

The roles that are often outsourced include:

  • Office Accountant / Bookkeeper
  • Trust accountant
  • Arrears administrator
  • Invoice administrator
  • Accounts payable clerk
  • Leasing administrator
  • Lease renewals administrator
  • Routine inspection administrator
  • Repairs and Maintenance administrator
  • Sales Listing administrator
  • Sales Marketing administrator
  • Contract administrator
  • Social Media / Creative Design / Copy writer
  • General Administration

Alternative outsourcing models and service levels

There are various alternative outsourcing models, each with its own advantages and disadvantages. Implementations may vary, and sometimes more than one model is used to deliver a wider service offering.

Homebase – You provide and manage the staff. The staff provide the workspace, equipment, and infrastructure (usually a small home office or bedroom).

Task Outsourcing – You provide tasks only. The vendor delivers defined outcomes based on the tasks you provide.

Seat Leasing – You lease a seat and you provide and manage the staff. The vendor provides the workspaces, equipment and infrastructure.

Staff Leasing – You manage the staff. The vendor provides the staff, workspaces, equipment, infrastructure, administration, office support, and human resource functions.

Captive (Build-Operate-Transfer or BOT) – The vendor initially provides and manages the staff, workspaces, infrastructure, and administration. Once your team is stable, you assume full ownership of the team and office environment.

Captive (Scratch) – You provide and manage the staff, workspaces, infrastructure, administration, office support, and human resource functions.

Why the Philippines?

There are many countries benefiting from the trend towards outsourcing including China, India, The Philippines, Mexico, Vietnam and South Africa just to name a few.

The Australian real estate industry has undoubtedly embraced the Philippines as the main destination for growing their offshore teams.

Apart from the relationships that were developed by the pioneers of this evolving industry, the Philippines offers a number of key advantages including:

A strong economy – The Philippine economy, one of the Tiger Cub economies, is currently the fastest growing economy in Southeast Asia, and 36th largest in the world. Propelled by a culture of hard work and an investment in education, it is expected to become the 16th largest economy by 2050.  The growth is fuelled by the business process outsourcing (BPO) industry which in turn is spawning a growing middle class. Despite the exceptionally strong growth, inflation is tightly managed and is currently running at 3.8%. However, the growth increases demand for highly skilled workers, especially professional level employees.

Labour costs are low – Labour costs in the Philippines are amongst the most competitive in the world, most significantly at the professional level which represents 40% of the workforce. Based on projections, it is expected to remain one of the most cost-effective workforces in the foreseeable future.   While in most countries, aging populations and shrinking workforces are driving salaries higher, the Philippines is seeing an increase in highly educated workers and a reduction of the average age of the workforce.

Strong education sector – The Philippines has a very active tertiary education sector. Over half a million graduates join the labour force each year.  There are over 2,300 higher education facilities in the Philippines, and education has become a very high priority for many Filipinos. Education is providing new opportunities for students, particularly in the areas of technology and business.  Education is incredibly important in a country’s development. In fact, the quality of the education system may be one of the best predictors of a strong economic future.

Similar time zone – One of the biggest benefits of the Philippines is that the time zone is very similar to Australia which means staff do not have to do shift work which decreases staff turnover.

Robotic and Intelligent Process Automation

The PieLAB research found that many businesses and outsourcing services providers are currently implementing or are discussing the use of robotic and cognitive process automation to improve outsourcing. Artificial Intelligence (AI) and robotic process automation will innovate certain aspects of business functions which certainly will disrupt outsourcing structures and drive down cost. This will result in more efficient outsourcing service, greater savings for businesses, as well as cause for companies to renegotiate their existing outsourcing deals to include AI functions in their agreement.

The Future

PieLAB research shows an increasing trend by real estate industry players to systemise their business processes and incorporate outsourced labour to facilitate this process.  We expect this trend to gain momentum as the shift toward fully automated solutions continues.  Our investment in what we consider the best outsourcing operator in the sector reinforces our confidence in the sector.

1 Comment

  1. Thankyou Richard Anderson for your article regarding outsourcing in the Real Estate Industry. I do agree that there are benefits for outsourcing parts of a business, however, I believe (through talking with people) that the Property Management industry (in particular) is breaking the “Golden Outsourcing Rule,” that is — Do Not Outsource Your Core Competency.

    Third party property management software such as PropertyMe and PropertyTree are common place and considered industry best practice for managing property portfolios. As such customers see the industry as a whole as undifferentiated (e.g. tenants and landlords feel indifferent if a property is managed by a major such as Ray White or an independent property management agency — they are considered much the same).

    Property Management Companies cannot fix any software inefficiencies because it does not own or control the core operational administration tool i.e. the property management software. These issues, when combined with the continued increase in software adoption and the associated decrease in software development costs, makes it increasingly more likely that new entrants with an improved property management process or an innovative new business model will disrupt traditional property management in the future, taking substantial market share, particularly where larger rental returns are on offer.

    Kind Regards
    Nathaniel Simpson (Property Entrepreneur)

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