Date
21 September 2017
Real-estate agencies in Hong Kong have reported impressive numbers, but the incomes of their individual employees haven't been too good. Photo: HKEJ
Real-estate agencies in Hong Kong have reported impressive numbers, but the incomes of their individual employees haven't been too good. Photo: HKEJ

Why property agencies are doing fine despite stringent policies

Hong Kong’s secondary housing market has contracted substantially in recent years due to government tightening measures. This has sparked doubts about the business growth prospects of real-estate agencies and brokers. The concerns were not surprising as the agencies have also witnessed rising competition from new entrants such as property websites and related mobile apps.

Now, how have things actually turned out for the industry? Let’s take a look at the figures from some leading property brokers.

Centaline Property Agency, the largest real-estate agency in Hong Kong, has announced that its residential sector commission hit a record high HK$2.04 billion in the first half of this year, up 44 percent from the same period in 2016.

Rival Midland Holdings (01200.HK) also posted an impressive total revenue of HK$2.33 billion in the first half, up 59 percent from the year before.

Aren’t agencies supposed to be struggling?

The truth is, the primary market has been booming. New home sales in Hong Kong jumped 76 percent to 10,200 units in the first half of this year, the highest since 2005. In terms of value, new home sales were up 99 percent to HK$136.7 billion.

Agencies are usually paid 2 to 3 percent commission for new home sales. Some developers even offer more in order to accelerate sales.

Assuming the commission rate is 2 percent, HK$136.7 billion of new home sales in the first six months roughly translates to fee income of HK$2.7 billion for the agency industry during the period.

Meanwhile, the city’s secondary home sales, though lower compared to the period before tightening measures took place, showed a decent rebound of 51 percent from a year ago to 23,500 units in the six months to June.

And the transaction value spiked 86 percent to HK$159.9 billion in the same period.

Realtors are usually paid 2 percent commission in secondary home sales, one percent from the seller and one percent from the buyer.

Therefore, the city’s secondary home market generated around HK$3.2 billion of commission revenue.

Meanwhile, newcomers so far have not presented that much of a challenge to traditional realtors, in particular in new home sales sector.

While the agency firms are raking in good money, the same, however, cannot be said of individual employees.

Dividing the total number of housing transactions by the number of property agents would give a simple idea of the average volume of business each one gets.

In the first half, the city saw combined housing sales of 34,000 units (primary plus secondary market), and there were 38,000 licensed realtors. That’s means the average transaction number closed by individual agent was just 0.89 in the period, far less than the 3 to 4 deals in the same period during 2008 and 2010.

Many realtors have to live with basic salary if they fail to make any deal.

Knowing how competitive the business is, some buyers may even push them to offer commission discount, worsening the situation.

No wonder we’ve seen agents fighting violently with competitors over clients.

With new home sales expected to remain robust in the second half and the secondary market showing signs of continued recovery, life could perhaps get a bit easier for these agents.

This article appeared in the Hong Kong Economic Journal on Aug 31

Translation by Julie Zhu

[Chinese version 中文版]

– Contact us at [email protected]

RC

Hong Kong Economic Journal columnist

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