Agents gunning for more commission

• Source: Global Times
• [18:06 March 04 2010]
• Comments

By Xu Huixian

Shanghai real estate agents increase their commissions from the current 2 percent to 3 percent, in order to fight against dramatic decreases in their profits due to the recent downturn in the city’s housing market and the suspension of favorable policies by local banks.

Many major agencies, including Centaline China, Pacific Rehouse, and Hopefluenct Group joined in drafting the proposal in early February, and the Shanghai Real Estate Broker Trade Association is performing feasibility research, according to Tan Baiqiang, general manager with Centaline China, one of the largest real estate agencies in Shanghai.

“Our business in second-hand flats transactions was a loss in the first two months this year, and we face pressure from increased operation costs and loss of talent,” Tan told the Global Times Wednesday when asked the reason for the commission hike.  

“Business is heavily affected by the slowdown in the housing market and local banks’ suspension of commissions,” said Wang Qi, a veteran property agent.

Shanghai banks used to pay agents 1 percent commission on the mortgage, as long as agents help set up mortgage contracts between home buyers and banks. Since January of this year, the favorable policy was cut off by banks, according to the Shanghai Banking Association.

“Shanghai banks strengthened risk control as the central government tightened bank loan policies nationwide, cancelling the policy,” Gu Jianfa, a researcher with the Institute of Real Estate at the Shanghai Academy of Social Sciences, told the Global Times.

“Even if it is approved, it still needs market recognition, given the current housing market slowdown,” said Gu.

“Two percent is a rate ceiling. The average commission the whole industry receives is only 1.5 percent,” Tan with Centaline China told the Global Times. 

Since the central government tightened control of bank loans and real estate development early this year, the gross floor area for new flats sold in Shanghai dropped 53 percent in January compared to last December, according to a survey done by the Yungching Real Estate Agency in Shanghai.

Currently, Shanghai home buyers and sellers each pay agents 1 percent of a total house price, giving the agents 2 percent commission once the deal is done. The commission is the main source of profit for the agents.