Ties that bind: Hong Kong’s developers and brokers find that they cannot do without each other
- Industry observers say builders need brokers as residential projects do not sell on their own
- Some developers have announced higher commission rates after ties between Sino Land and brokers soured because of below-market fees
The poorer than expected sales at the weekend at Sino Land’s Grand Central development in Kwun Tong after the builder cut the commission fee for agents, underscores the inseparable relationship between developers and brokers.
“Developers, no matter how big they are, still rely on property agents to help them sell projects,” said Donald Fan, chief operating officer of Paliburg Holdings, a local developer. “If a developer says ‘I don’t need agents any more’, I do not believe its projects will sell well unless it is very cheap.”
Fan said the handling of sales by the developers themselves will be very difficult in the short term because they will need agents’ help when they vie for buyers for projects in the same area.
Pak Shek Kok in Tai Po is a good example where more than 3,000 units are expected to be launched over the next few months.
By making use of the 40,000 agents in Hong Kong, developers can save costs in setting up a sales force to market their new projects.
Developers have relied on agents to market new project launches instead of maintaining their own sales teams since the property slump of 1997.
To encourage agents to speed up sales, developers have even been offering a commission rate of between 2.5 per cent to 8 per cent in recent years.
On January 5, Sino Land just sold 39 out of 118 units on offer for public sale, compared to 100 per cent sales in the first two launches in December. Sino Land only registered about 289 potential buyers for the sale and only drew 100 agents.
In the previous round, Midland Realty and Centaline Property Agency had mobilised more than 4,000 agents to push the Grand Central project.
The tepid sales result at weekend came after Sino Land announced a below-average commission rate of 1.7 per cent after 1,385 flats in the 1,999-unit project had been sold in December, infuriating major property agencies.
Centaline Property Agency, one of the city’s largest, wrote a five-page complaint letter to the developer’s chairman Robert Ng Chee Siong last week regarding the low fee.
To calm the enraged agents, Sino Land raised the commission to 2 per cent on January 3. Still the January 5 sale flopped.
China Overseas Land & Investment, in an apparent bid to avoid a repeat of the dispute with agents, offered a 3 per cent commission fee for its 1,620-unit The Regent development in Tai Po, a full percentage point higher than that offered by rival Sino Land.
With the help of agents and a lower price strategy, the development has managed to garner market attention. More than 3,400 prospective buyers have registered for the sale in three days since the project was announced on January 3.
“More than 95 per cent of agents have shifted from Grand Central to The Regent because of the higher commission rate and few remaining choices at Grand Central,” said Louis Chan, chief executive of the residential division at Centaline.
“Centaline has about 2,500 agents working on The Regent,” he said.
Meanwhile, agents say a commission rate of more than 2 per cent is necessary for new flats.
“When agents cover [sales of] used homes, they can get 1 per cent [of the home’s value] from the buyer and seller each,” said Sammy Po, chief executive of the residential division at Midland Realty, which has more than 6,000 agents.
He said that brokers, in a bid to lock in sales, offer a rebate on their commission to clients, while such an arrangement is usually not seen in the secondary market.
“If the commission rate is less than 2 per cent, then it won’t attract agents and they would rather cover sales of used homes,” he said.
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Hong Kong’s only listed property broker Midland Holdings, which has more than 6,000 agents, has given rebates of HK$1.35 billion (US$172 million) earned through commissions to buyers in 2017, according to its annual results, up 29 per cent from HK$1.04 billion in 2016.
Midland’s Po said the recent dispute has caused other developers to announce the commission rate before the sale.
“It is much fairer this way,” Po said. “We can decide whether to cover the sale or not.”