Midland reveals real estate rebate incentives soar 74pc in effort to lure buyers
Firm delivered HK$11 million in net annual profit last year, despite revenue climbing to record high of HK$5.07 billion
Midland Holdings, Hong Kong’s only listed realtor, has revealed a 74 per cent rise in rebate incentives to HK$1.01 billion (US$128.7 million) last year, which significantly squeezed margins as competition remained fierce and transactions dwindled.
Its latest set of annual results show HK$10.55 million in net profit, despite its revenue climbing to a record high HK$5.08 billion. Agency fees accounted for 99.6 per cent of turnover.
Midland owns and operates 625 “Midland Realty” branded branches in Hong Kong and employs 11,425 staff.
“Rebate incentives are divided into two parts: to clients and other co-brokers,” it told South China Morning Post on Wednesday.
“As industry competition is intensifying, rebate incentives have become an industry norm.”
But despite that fierce competition, it added that “buyers still prefer buying new flats, through major property agents who strictly comply to contract terms, and who return agreed amounts of commission to buyers once agency fees are received from developers”.
Developers currently offer two to three per cent of a flat’s value as commission on every sale by an agent.
“Some will then pay back half to one per cent of that commission fee to buyers, helping to reduce purchase prices,” said Alfred Lau, a property analyst at Bocom International.
The more transactions they broker, the more they can spend on rebate incentives, he said.
Midland’s performance is a clear indicator that realtor profit margins have been declining over the past eight years.
In 2009, Lau said the company recorded net profit of HK$690 million on turnover of HK$3 billion.
Then, its rebate incentives were HK$46 million, just 4.6 per cent of last year’s figure.
“The hefty increase indicates the tougher operating environment, “ he added.
The number of residential transactions plunged by half to 73,004 in Hong Kong last year, compared with 2010.
There are currently 37,000 agents chasing an average 6,000 deals monthly, meaning six agents are scrapping it out for every deal.
Midland’s principal rival, the unlisted Centaline group which operates self-branded outlets in Hong Kong and the mainland, recorded net profit of HK$1.2 billion last year, on turnover of HK$20 billion. Its Hong Kong operation reported earnings of HK$400 million.
Shih Wing-ching, Centaline’s founder, said the sharp increase in rebate incentives had created unhealthy competition, to an already harsh environment.
His firm’s profit margin dropped to six per cent last year last year from 10 per cent previously.
“We hope to use our technology advances and improved levels of service to enhance our competitive edge, rather than offer bigger rebate incentives to buyers,” he said.