china property

China’s largest property agents cut commission fees amid downturn

Individuals outlets lower rates as their bargaining power is undermined

PUBLISHED : Tuesday, 16 May, 2017, 6:48pm
UPDATED : Tuesday, 16 May, 2017, 10:54pm

China’s largest property agents have quietly lowered their commission fees amid the worst property downturn since 2010 following unprecedented market cooling measures by government authorities.

In Beijing Homelink, China’s largest property agent, is offering rates below its 2.7 per cent commission fee in many cases. 5i5j, the second-largest agent, lowered its official rate from 2.1- 2.2 per cent to 1.9 per cent, according to interviews with individual agents and buyers in the city.

However, a 5i5j spokesman told the South China Morning Post that reports its commission fee was lowered company wide from 2.5 to 2 per cent were “totally untrue”. He said commission fees are decided on a case-by-case basis and that specific rates were determined by the “sophistication” of the deals.

Homelink declined to comment for this story. But the company told Beijing Youth Daily on Monday that each outlet determines the rate by themselves, and that the company hasn’t cut rates in a unified way. The Daily reported that many Homelink outlets have cut the rate to 2.2 per cent.

In reality, the “official” commission rate is the figure agents generally tell prospective buyers, which in many cases deviates from the actual rate. Even in boom times, agents would often lower the rate when homes were also listed by a rival agent and buyers approached the rival, or if the buyers were old customers, or for buyers who could pay in cash without bank loans. However, when a downturn hits agents are more willing to compromise a few basis points in the commission fee for a larger transaction, and buyers gain more bargaining power.

A typical home in Beijing now sells for between 6 to 10 million yuan (US$870,000 to US$1.4 million), so even a 0.1 per cent cut means 6,000 to 10,000 yuan [LESS?]commission fee.

A prospective buyer surnamed Hua, who bought an apartment through 5i5j a year ago, told the Post that the same agent promised to reduce her fee to 1.75 per cent for full cash payment, or 1.89 per cent if she needed loans. Prior to that, 5i5j agents charged a 2.5 per cent fee but genuine buyers could bargain it down to 2.1-2.2 per cent.

Hua said Homelink was much less likely to compromise, but actual rates can be negotiated at 2.5 per cent, but it varies based on different locations, even within the same company.

A Homelink agent approached by the Post said he hasn’t received official guidance that the 2.7 per cent fee will be adjusted, but added that he can offer lower rate if buyers are genuine and if the homes are exclusively represented by his outlets. Outlets operated by China’s agents usually exclusively represent a small portion of homes nearby and co-represent a majority of homes among other outlets in the same company.

The commission fee adjustment came just a few days after Homelink announced it had closed 87 outlets among the 1,500 or so it operates in Beijing. The city’s housing commission said various agent firms closed 138 outlets recently, and 520 were closed on orders of the government due to violations.

Homelink, China’s biggest property agent, closes 87 branches in Beijing as buying curbs bite

The closures and fee cuts underscore the depth of the property market slow down in China’s biggest cities. After a 35 per cent slump in April, sales of pre-owned homes in the first two weeks of May fell a further 22 per cent over the prior month’s average weekly sales, according to Beijing housing commission data.

Nearly 80 per cent of buyers surveyed in Beijing said the current commission fees are excessively high.