Big agencies to expand to offset fall in profitability

PUBLISHED : Wednesday, 13 June, 2012, 12:00am
UPDATED : Wednesday, 13 June, 2012, 12:00am


Large estate agencies are eyeing expansion into space left by smaller firms quitting the Hong Kong market in a bid for a greater market share.

Macau-based Region One Realty entered Hong Kong in 2010 and had four branches in Kowloon, but one has closed and the rest will do so next month due to falling sales.

'It is not as easy for agencies to make a profit as it was before,' Eric Cheung, a director at Ricacorp Properties on Hong Kong Island, said.

Deals dropped significantly when a special stamp duty was imposed on quick resales in November 2010, Cheung said. And rising office rents and the need for more staff to prepare for the new 'usable area' regulations next year were pushing up costs.

'Our profit margin will inevitably decrease,' he said, so Ricacorp would expand in the second half. 'We have to hire more agents to get more business and generate more profit.'

The monthly value of secondary market transactions in areas of Hong Kong Island covered by Ricacorp branches was about HK$7 billion, Cheung said, and about 56 per cent of the deals were brokered by the big four agencies - Centaline, Midland, Ricacorp and Hong Kong Property Services (Agency).

'In the primary market, the transaction volume is approximately HK$3.8 billion a month and about 85 per cent of the deals are handled by the major firms,' he said. 'So you can see there is share for us to capture.'

Ricacorp has 430 staff in its 55 Hong Kong Island branches, a staffing level about 40 per cent less than its competitors, Cheung said. It was planned to increase staffing to about 600 by the end of the year.

The managing director of Centaline's Asia Pacific residential unit, Louis Chan Wing-kit, said Centaline had 4,800 staff in 289 branches. It planned to expand and expected to have more than 300 branches in Hong Kong by the end of September.

'We have to hire more in-house lawyers and support staff to meet the new sales requirements,' he said. The new rules would hit small agencies in particular. 'Some small firms with one or two branches may leave the industry until sales rebound significantly,' he forecast.

But Lawrance Wong of mid-sized firm Many Wells Property Agent sees it differently. 'I think we will see the big firms close their branches later this year, but since operating costs for smaller firms are lower, I don't think more small firms will close.'