Property heavyweight PropNex Realty is merging with the Dennis Wee Group to form the largest real estate agency in Singapore.
The surprise deal announced yesterday comes amid a tighter residential market that has seen reduced transactions and falling commission for agents, whose ranks have been thinning for some years.
The merger involves Dennis Wee Group, which has 1,071 salespeople, joining forces with PropNex and its 5,855 salespeople by the end of next month. It is estimated that at least 80 per cent of Dennis Wee's agents will move across, giving the newly enlarged PropNex a sales force of about 6,600 agents.
That will mark a major coup for the firm as it will allow it to trump ERA, which has been the largest agency here with 6,243 agents.
PropNex chief executive Ismail Gafoor said yesterday that there is no "dollar value" put on the merger.
Mr Ismail called the deal "one of the most shocking arrangements we have gone through", given that there have been no monetary terms to thrash out. "It was never about equity terms. We signed a simple memorandum of understanding," he said, adding that the essence of the agreement was about the transition of the property agents.
Mr Dennis Wee, chairman and founder of his namesake group, said the merger came as the company wanted to offload its brokerage business to focus on investments, valuation and property development. He declined to say which other parties had approached him.
Mr Wee, 65, said he also wanted to spend more time with his family but wanted to ensure that his salespeople, many of whom have been with the company for more than a decade, can continue to develop their skills and sales revenues.
Mr Denka Wee, 33, his son who joined the company seven years ago, told The Straits Times that the group was making the change in direction as it now derives 90 per cent of its profit from its businesses in investment and development.
The group's annual revenue is about US$60 million (S$83 million), he said, but his father draws just a four-figure salary a month.
The elder Mr Wee will continue to get a salary from Dennis Wee Group, but will not be paid by PropNex but reap a cut from agent commissions. His official role at PropNex will be senior strategic partner.
It is unclear how many agents will move over to PropNex, but Mr Ismail said that having spoken to between 20 and 30 of the divisional leaders during negotiations, he expects at least 80 per cent of Dennis Wee Group agents will join PropNex. The transition is expected to be completed by the end of next month.
The property market is still reeling from the effects of the cooling measures, and the numbers of property agents and agencies have been falling. There were 28,397 licensed property agents and 1,286 agencies as of Jan 1, according to the Council for Estate Agencies, down from the 30,830 agents and 1,369 agencies in 2015.
Mr Nicholas Mak, head of research and consultancy at real estate investment firm ZACD Group, said yesterday: "The merger is a sign that the real estate agency industry is entering the 'matured phase' where the revenue and profit of some firms are facing slower or little growth."
Mr Ismail thinks that the industry will continue to consolidate as "the volume of transactions is limited". "In Singapore, two strong brands or at most three can exist... For the smaller agencies, unless they have a niche where they can value-add, it will be very tough."
But consumers can benefit from such mergers, he added, as they enlarge the network of trained agents and listings which they can tap into.
Sales agents benefit from economies of scale, such as getting discounts for property advertisements and benefiting from training.
The market may be challenging but PropNex appears to have the wind in its sails. It posted a 21.5 per cent jump in revenue to $278.9 million last year, and expects to grow by another 30 per cent to 40 per cent this year, Mr Ismail added.