Online realtors may soon challenge Hong Kong’s traditional property agents

Are property agents in Hong Kong worth the commission they charge?

With home values in Hong Kong rising more than 150 per cent since 2009, realtors – who charge a fee of 1 per cent of sale price from both buyer and seller – have seen a sharp rise in commission payments per deal for potentially the same amount of work, especially in the mass housing market.

Given that more home buyers and sellers searching for information online, analysts and industry participants believe the traditional business model of the city’s property brokerage business will gradually undergo a structural change and that could see a decline in commission levels.

The city’s real estate brokerage businesses are controlled by two property agents – Centaline Property

Agency and Midland Realty Holdings – which compete head to head to gain market share by opening new branches.

Centaline, together with its subsidiary Ricacorp Properties, have about 580 branches in the city. Midland Realty, which together with subsidiary Hong Kong Property Services (Agency), had 625 branches as of June last year. Both agencies are still increasing their number of physical outlets.

“The traditional business model, where agents focus on physical presence as a contact point for sellers to list their properties and for buyers to look for homes, will be gradually replaced by an online presence,” said Professor Chau Kwong-wing, chair of the University of Hong Kong’s department of real estate and construction.

“With an online presence, we do not need a physical presence to link up with agents and customers. Without having to bear high shop rents, the commission could go down,” Chau said.

The prediction is being put into practise by former property agent Billy Chak Ngai-yin, who set up his own online property agency called Home Republic in 2015 hoping to revolutionise the existing industry structure by offering digital services and charging lower commission fees.

“For the units at large housing estates the transactions are simple and straight forward. Agents don’t need to do too much work. They should charge less,” said Chak.

Chak charges each buyer and seller a flat rate of HK$12,500 per transaction for selling properties valued at up to HK$12 million, a much lower fee than what traditional property agents charge, but for essentially the same service. The difference is that sellers post their properties on the website.

For buyers, Chak’s fee includes basic services such as searching land registration records, arranging the property inspection and free online listing of the property.

Taking a flat valued at HK$7 million as an example, the buyer and seller would normally pay HK$70,000 each when dealing with a traditional property agent. With the flat fee, each party saves HK$57,500. The fee charged by Home Republic goes up from HK$12,500 to HK$28,000 if clients request premier services.

For his sales agents, Chak prefers to pay them a higher base salary plus commission, as opposed to the existing compensation system that is almost 100 per cent commission.

“We will have licensed agents arrange viewings and we help negotiate a fair price for both parties. We are then here to help every step of the way, such as searching land registration records, until the deal is completed,” he said.

Chak, 35, started his first job at JLL selling new properties for developers and later worked as a sales agent at Midland Realty. Before joining the incubation programme of Hong Kong Science and Technology Parks Corporation to form his start-up last year, Chak was a director in Colliers’ commercial department.

Alva To, DTZ/Cushman & Wakefield’s senior managing director, agreed that digital property agencies will become a trend, resulting in lower commission fees for transactions of mass housing units.

“It is just like the property valuation business. The industry became popular with the public when property valuation services went online. As a result valuation fees dropped drastically,” To said.

But he added that the online agency model would only apply to the mass housing market because deal structures for offices or luxury properties are more complicated and time consuming, requiring the advice of professional consultants.

Joseph Tsang, managing director of JLL Hong Kong, said digital agencies have room to grow but won’t replace the traditional industry, at least not in the near term.

“Buyers and sellers are still used to the traditional buying method. They go to the branch and chat with agents to get updated information,” he said.

Sammy Po, chief executive of Midland Realty’s residential department, shared the view.

“We are not idiots. If an online presence can replace a physical presence, we don’t have to pay high rents to expand our branch network,” said Po.

But he admitted that the importance of having an online presence is growing. “Ten years ago, we didn’t see any deals sourced from our website. But now 20 per cent of your clients approach us after seeing our online listings. The ratio is even higher in the New Territories,” said Po.

Digital agencies in Hong Kong also face another problem – a shrinking secondary market after the government announced on November 4 the imposition of 15 per cent stamp duty on property transactions.

“Physical presence may be replaced by online presence in the long term, but it doesn’t mean that a reduction in branch costs will result in a cut in commission fees,” said Centaline founder Shih Wing Ching.

Shih said propery owners or buyers often underestimate the value of an agent’s work, thinking that buyers and sellers can clinch direct deals by themselves. “It doesn’t work. They need good agents to discuss options and offers between buyers and sellers,” he said.

Po of Midland said the commission rate of 1 per cent of sale price has been the norm in the industry for decades.” It is not expensive when compared with other countries. We have no plan to change it.”

Like other new entrants into a market dominated by a couple of large realtors, online agent Chak faces the problem of getting property listings from flat sellers.

“As a start, we will launch a marketing campaign in major housing estates to introduce them to flat owners,” he said. “We plan to spend HK$1 million as an initial investment, with more than 60 per cent for marketing purposes.”