Ceiling on Beijing agents' fees to cool home sales

PUBLISHED : Wednesday, 31 August, 2011, 12:00am
UPDATED : Wednesday, 31 August, 2011, 12:00am


Beijing property agents face a squeeze after the municipal government reduced the maximum commission they can charge on the sale of homes in the secondary market.

From today, people who buy homes on the secondary market in Beijing will pay set fees on a sliding scale from 2 per cent to 0.5 per cent; the higher the price, the lower the percentage fee chargeable.

The 2 per cent fee applies to properties at the low end of the market, those worth less than $5 million yuan (HK$6.1 million). The most expensive properties, those costing more than 50 million yuan, will produce the minimum 0.5 per cent fee.

'This compares with the existing maximum commission of 2.5 per cent charged by agents,' said Dickson Wong Hung, chief executive for northern and southwestern China for the property agency Centaline.

'It will definitely have an adverse impact on agents' operations, especially in the sluggish sales market,' Wong said.

There were 8,579 transactions in the secondary housing market in Beijing in July, down 10 per cent from last year, according to agents. Transaction volumes were down 34 per cent for the first six months of the years when compared with the first half of 2010.

Agents were already offering discounts of 20 per cent on their standard commission to attract more business as sales activity slowed.

'Now the government has set a ceiling on maximum commissions of two per cent,' Wong said. 'We will probably manage to earn a maximum rate of 1.5 to 1.6 per cent after discounts at the end of the day.'

Moreover, the new rule would further affect the operating environment for agents, which had already been affected by a stream of government measures intended to reduce demand for properties and rein in prices, Wong said.

'Through our industry association we have reflected our concerns and difficulties,' he said. 'But the rule will still go ahead.'

The impact on the market would not become clear for another two months, Wong said.

Some agents will probably be forced out of the Beijing market by the lower commission and weakening sales. Centaline has about 200 branches in Beijing and has not decided whether to close some of them.

In the meantime, agencies are bracing for the possibility that the lower-commission policy may be extended to other cities.

To cool the red-hot property market, the central government has been rolling out measures to tighten lending while restricting demand for property and increasing supply.

The central government in January announced eight measures to curb the property boom and, for the first time, required local governments to set targets for average home prices.

Based on guidelines set by Beijing, at least 35 big cities moved to restrict registered residents from buying more than two flats.

Last month, the government decided to expand such restrictions to smaller cities because property prices in those markets were still rising rapidly.

Taizhou, a so-called third-tier city in the wealth eastern province of Zhejiang, recently announced home purchase restrictions, becoming the first of the smaller cities to meet the requirement to announce such measures.

More smaller cities are likely to follow suit with similar restrictions in the next few weeks. That would be a negative for the property sector, according to a report by Samsung Securities (Asia).