Hong Kong property

There’s no better time to be a real estate agent as fees soar amid Hong Kong’s record prices

Centaline and Midland see fees top a total of HK$10 billion

PUBLISHED : Thursday, 29 March, 2018, 7:17am
UPDATED : Thursday, 29 March, 2018, 1:20pm

Hong Kong’s two largest property agents, Centaline and Midland, enjoyed sharp increases in commission revenue generated in the city last year, as sales of new homes and prices surged to record highs.

But market commentators are warning the sector’s outlook remains clouded by uncertainty over rising interest rates, and that the volatile equity market could also dent buying desire.

Privately run Centaline Group, which operates more than 3,000 branches in total, including in 37 cities in mainland China, reported profit of HK$1.05 billion (US$133.8 million) in 2017.

That was down 17 per cent from a year ago, as its mainland home sales were hampered by market cooling measures, according to a statement it issued on Wednesday.

Its commission revenue in Hong Kong, however, where it operates a chain of 640 branches under the Centaline Property Agency and Ricacrop Properties brands, hit a record HK$5 billion, an 18 per cent rise from HK$4.27 billion in 2016.

Midland Holdings, the only listed property agent in Hong Kong, reported a whopping 1,700 per cent leap in profit to HK$193 million last year, from HK$11 million in 2016. Its commission fee income rose 4.4 per cent to HK$5.3 billion for the year ended December 2017. 

Together with its subsidiary Hong Kong Property Services, Midland has around 600 Hong Kong branches. It returned to the black with a profit of HK$11 million in 2016, after suffering a loss of HK$99 million in 2015.

Freddie Wong Kin-yip, Midland’s chairman, said the group’s net profit was now at a five-year high. 

However, in a note of caution, he said “going forward, a return of volatility in global and local financial markets could mean fund flows in Hong Kong could become more volatile too”.

Alfred Lau, a property analyst at Bocom International, said: “2017 was an exceptionally good year for the Hong Kong property market, with prices driven by excess liquidity and low interest rates. 

“But 2018 is looking more volatile, considering interest rates are entering an upwards cycle and there has been a rise in new supply.” 

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The accelerated home price growth has also raised concerns by the Hong Kong Monetary Authority, which said in its half-yearly Financial Stability report on Wednesday, that “the outlook for the residential property market remains uncertain”.

“In the near term, the current favourable domestic economic conditions, perceived housing shortage, low mortgage rates and alternative sources of home financing will continue to support demand for property – but the recent sell-offs in global financial markets may dampen property market sentiments.”

Derek Chan, head of research at Ricacrop, said he expected sales of new flats to further increase to 22,000, with an estimated total transaction value amount to HK$295 billion in 2018.

In 2017, sales of new flats climbed to a 10-year high of 19,481, and total transaction values reached hit a record HK$244.97 billion, Ricacrop figures show. While sales of used homes saw a year-on-year 11 per cent rise to 45,260 last year, the highest number of transactions since 2014.

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Hong Kong’s used home prices hit record levels for 15 consecutive months until January, according to Rating and Valuation Department data – the longest stretch of gains since 1993.

Alfred Lau said Hong Kong developers have been paying commission fees of between 3 and 3.5 per cent – compared with the two per cent charged in broking fess on the used market – on every new flat sold, as an incentive to encourage more sales.

The high commission level have prompted major property agents to shift their focus to the primary market. 

Using large branch networks, they offer prospective buyers a full range of services including show-flat viewings and helping registered buyers complete sales on official release dates.