Mainland real estate agencies have started cutting staff and closing outlets because of low transaction volumes due to stringent government controls on property sales, and agents expect more cuts in the coming two months.
'In the last two months, the industry has been shrinking, with the number of property agency outlets reduced by about 30 per cent. First-tier cities such as Beijing and Shanghai are the most severely hit,' said Victor Cheung Kam-shing, Midland Holdings' executive director who overseas the company's mainland business.
Cheung said his company was one of the first to streamline its workforce and branches. It has cut the number of branches and offices on the mainland to about 250, from nearly 300 in the second quarter. Staff numbers were reduced by 10 to 20 per cent.
But the wave of lay-offs and branch closures that followed had only started to kick in across the industry since August, Cheung said, with some smaller brokerages in competitive cities such as Beijing shutting down their entire business.
Those firms that ignored the trend and continued to expand aggressively in the second and third quarters now faced the problem of sustaining their businesses as property transactions slumped.
'The present transaction volumes are unable to support the number of agents. Only about 20 to 30 per cent of the agents can manage to seal a deal every month, and over 60 per cent are struggling for clients,' Cheung said.
'For example, in Shenzhen there are about 20,000 to 30,000 agents, but only a few thousand transactions can now be sealed in the secondary market and another few thousand for new homes every month.'
Home sales volumes in Beijing and Shanghai plummeted by half in the last two months, he said, meaning agents on average are earning 50 per cent less, because their income largely relies on commission. Cheung said the industry would keep shrinking until the Lunar New Year in January, which is the traditional low season for the Chinese market.
Last week, brokerage giant Centaline Property Agency said it would close 60 outlets in Shenzhen and lay off 1,000 staff on the mainland. In September, 18 Property Agency also reduced its offices on the mainland to a dozen, from about 20.
'It's very difficult to operate on the mainland because of the ongoing tightening policies. The home purchase restriction limiting the number of residential flats a buyer can purchase, the introduction of a property tax in certain cities and the increasing difficulty to get mortgage loans... all these have seriously dampened the secondary home market,' said 18 Property Agency's chairman, Edward Cheung Siu-chuen.
The agency said it had no further plans to cut staff and branches. Instead, it would like to explore opportunities in some second- and third-tiers cities to expand its business.
Century 21 China Real Estate said in its latest financial statement that it temporarily closed 34 outlets over the second quarter. It closed an additional 39 sales offices in the second week of August, citing 'current depressed secondary-home-sales transaction volume'.
Although the property market has cooled down, the central government shows no sign of easing its tightening policies. Premier Wen Jiabao said on Sunday that 'there is no possibility of loosening the real estate policies. Our target is to let the property price fall to a reasonable level'.