Agents rein in expansion and seek rent cuts
Real estate agencies are bidding for cuts in their branch rents and slowing their expansion into new outlets to weather falling commission incomes as deal volumes plunge to their lowest levels since March 2009.
Just 6,579 properties changed hands last month - down 61 per cent from the recent peak level of 16,946 sales recorded in August last year. The sharp fall has translated into sharply lower commission for estate agents.
'We are encountering huge challenges to meet this year's commission target of HK$3.3 billion as transactions drop sharply because of the uncertain global outlook and volatile stock market,' the chief executive for Asia-Pacific at Centaline Property Agency, Addy Wong, said. ' So far we have reached 60 per cent of the target. Now we have less than 100 days to catch up with the shortfall. It is not an easy task to accomplish.'
To adjust to the lower sales and commission revenues, Centaline slowed its branch expansion in the second quarter and will not renew leases at some locations if landlords insist on raising rents significantly.
'We have started negotiations with the landlords six months ahead of the renewal dates for leases. We hope to get a 10 per cent reduction in rent, otherwise we will relocate to less expensive locations,' Wong said.
Twenty to 30 branch leases were up for renewal every month, he said, and at selected branches in Hung Hom and Tsuen Wan discussions had already begun with landlords - most of whom are individual owners of street-level shops - for rent cuts.
Monthly rents at some Centaline branches ranged from HK$80,000 to HK$100,000, while rents paid for prime locations would range from HK$160,000 to HK$230,000. A branch paying HK$200,000 would have to generate commissions of HK$500,000 to HK$600,000 just to reach break-even point, Wong said.
'As most of the more costly branches are strategically located, we will not simply close them down because their sales performance is being affected by the short-term market volatility. We will look at the whole district performance before taking any action,' he said.
The firm would also maintain the size of its workforce.
Richard Lee Chi-sing, chief executive of Hong Kong Property, which has 85 branches, said the pace of branch expansion would definitely slow, but there were no plans for scaling down the operation, which employs about 1,000 property agents.
'We will observe the market for another six months as business has only slowed significantly over the past two months,' he said
Midland Holdings executive director and chief executive Vincent Chan said the firm would only consider opening new branches in areas where it did not have a presence.
Meanwhile, the number of home sales in the secondary market continues to fall. Ricacorp Properties said in 13 out of 50 estates it monitors there were no transactions for October 3-10, down from nine a week earlier.
The proportion of the annual commission target Centaline Property agents still had to make with 100 days to go