With the rapid popularization of artificial intelligence (AI) technology, the AI assistant/intelligent tool OpenClaw “Lobster” is easy to install. Hong Kong's real estate agency industry is undergoing an unprecedented structural transformation. For a long time, large agency firms like Centaline and Midland Realty have been relying on massive branch networks to monopolize customer resources and information. However, this expensive operating model will be completely revolutionized in this era.
Under the innovative technology model, VR property viewing, AI property inspection, and big data valuation have become mainstream; the "display" function of physical branches has been significantly weakened. Centaline and Midland Realty have 333 and 317 branches respectively, and it is estimated that they must close down 150 branches within the next three years. Both these two agency firms have approximately 5000 employees, and they will also need to reduce their workforce by half to 2500 employees.
In contrast to the large and medium-sized agencies, small firms have been adopting AI tools more flexibly with lighter branches of burden. Through AI's innovative marketing capabilities, smaller firms have significantly improved their operational efficiency and reduced costs, narrowing the technological gap with industry leaders. Administrative expenses have been drastically reduced, leading to a substantial increase in their profitability.
To survive in the AI era, major firms must promote a "flattened" management structure. AI could replace many tedious junior administrative works and mid-to-senior level management tasks, and it means a significant reduction in the number of board-level executives in each region is workable. For example, Centaline and Midland Realty have 40 to 50 experienced but less innovative directors, with an average annual salary of over two million, and some even earn over five million per year. Targeting layoffs of these executives will save over one hundred million annually. Combined with the reduction of 150 branches, this will save another two hundred million in rent expenditure annually.
Without immediate action, leading firms will find it hard to compete with small agencies. As a result, small firms using AI are like bringing a gun to a knife fight against traditional giants. A sizable part of the commission earned by large firms in each transaction goes towards expensive branch rents, massive back-office staff, and tiered management bonuses system.
Wong Yin-on, CEO of Cybernetics 1, said in a recent interview with Sing Tao Daily that AI processes the data more precisely than manual inputting, which is the greatest advantage of using AI. Furthermore, he said: “Floor plan matching and feature extraction are 100% correct. It not only simplifies the data input process but also saves 30% of manpower." Companying with Mr. Wong, Sing Tao's reporter recently visited a small agency in Sha Tin to investigate the benefits of using AI. The result stunned the reporter. It turned out that small agencies could use AI to process property data forms, authorization letters, key information of residential properties, even bills & receipts etc. AI significantly reduces operating costs of back office in small agencies. Indeed, it could also provide quality back-office services equal to the standard of large agencies but with lower costs. The small agency's boss in Sha Tin said, "I have no need to own my back-office anymore." In fact, AI enables small agencies to offer lower commissions or a fixed commission rate option, while large agencies will face losses if they follow suit.
Many AI platforms can aggregate data from major real estate websites, and social media. Through these platforms, smaller firms can obtain updated data analysis and property reports at the same level as large firms.
When information asymmetry disappears, large firms can no longer demand higher commissions based on their "leading brand." Smaller firms are directly transferring the power of AI technology into new productivity, posing a significant challenge to large firms with heavier costs. Large firms are tied up in many shop leases, and they are hard to execute large-scale staff layoffs in the short term. In fact, it is almost impossible for them to reduce operating costs to the level of small firms either, leading to a decline in competitiveness.
In summary, AI is diluting the economics of scale of large firms, and the industry's competitive capability is shifting from the physical branch networks to the digital capability. If large firms do not reduce redundant staff and branch networks, they will lose competitive advantage in the technology wave which strives for efficiency.
