Propzy predicament signals warning to property startups
Once considered a rising star in the field of real estate technology, Propzy announced its closure last week.
Following its internal announcement to cease all operations, all Propzy employee labour contracts were terminated effective September 13.
Founded by John Le in 2015, Propzy was the first company in Vietnam to provide a technology-based solution for real estate transactions in a closed process by directly connecting buyers and sellers.
Up until early 2021, Propzy’s business model was still an integrated all-in-one service, allowing the company to collect commission of 1 per cent from every transaction as a middleman. When a piece of property encountered legal issues, the company would also provide legal services with an off-contract fee.
According to Tech in Asia, Propzy successfully raised $33 million during its operation, the second-largest total investment in Vietnam’s proptech market.
Like many well-known startups with groundbreaking business ideas, Propzy’s initial recipe for success was expansion. By 2017 the company had increased to 120 employees and moved to a new office. The following year, the number of employees increased to 200 and a transaction centre system was formed.
By 2020, Propzy had 1,200 employees, 80,000 customers, and more than 30 transaction centres. It was in the process of building a lending strategy to assist its homebuyers before encountering a series of operational and capital management issues at the onset of the pandemic.
According to Tran Khanh Quang, general director of Viet An Hoa Real Estate Investment JSC and one of the industry insiders who had followed Propzy since its early days, the startup was typical in that it boasted a good model but poor execution.
“In the beginning, John Le was in charge of finance, with a team of highly qualified technology and real estate staff members. However, over time, it seems that the management line in the company was no longer as clear, and the founder seemed to have made many decisions on his own,” Quang told VIR.
By the end of May this year, Propzy dissolved its subsidiary Propzy Services. A month later, in a restructuring effort to develop new products and enter a new round of funding, the company cut half of its staff, mainly in sales. Along with that, Propzy also temporarily closed all transaction centres.
Despite considerable doubts from the market at the time, Le insisted that all the changes were in line with the company’s new business model and strategy. It was hoped that the company would sub-divide its service segments for easier management, including an exchange that connected all real estate needs, a transaction support service, real estate financial solution service Propzy Stay, and a new product line called Propzy Home.
The turnaround and restructuring plans could neither improve the business situation nor convince investors to put down money. Tech in Asia a fortnight ago reported that Propzy was in early-stage negotiations with 99 Group of Singapore about an acquisition agreement. However, it was uncertain whether 99 Group would continue to pursue the deal.
Le Minh Duc, founder and CEO of Remaps, another proptech startup, noted that Propzy’s income source was not sufficient enough.
“Its only source of income was a small commission on every successful transaction and, as its tech portion was insufficient, they were forced to bring many brokers into the same transaction to avoid risks,” Duc assessed. “It is difficult for a startup to survive when the personnel apparatus becomes cumbersome.”
Quang of Viet An Hoa added that the unfortunate event was a typical case of overspending. “In addition, as Vietnam’s real estate industry is quite fragmented and complex, it takes someone with practical hands-on experience to fully understand the industry. Many real estate businesses nowadays like to attach technology to their products and service. But without the right execution, money will just be burnt in vain,” he said.
Propzy’s Management Board confirmed that remaining salaries and accumulated leave would be paid in full, and that the company will also try to provide a severance allowance commensurate with each employee’s tenure and contribution.