China weighs cap on property agent commissions to bolster sales

CHINA may impose a nationwide cap on real estate commissions to boost demand in the flagging property market and regulate brokerage fee collection, according to people familiar with the situation.

Authorities are considering a range of 2 per cent to 2.5 per cent of the sale price as a guide, one of the people said, asking not to be identified discussing a private matter. The cap, once in place, is likely to be adjusted every one to three years based on market conditions, the people said.

Discussions about the policy are still ongoing and no final decision has been made on the policy timeline and fee cap, the people said. An announcement on the proposed policy could come as soon as the end of January, they added.

The housing ministry didn’t immediately respond to a request seeking comment.

The cap would add to a series of moves announced by Beijing in recent months to revive a housing market that’s been battered by restrictions on company borrowing and Covid-19 lockdowns. Measures have so far focused mainly on the supply side by increasing financing for developers and a gradual opening of credit markets for the strongest firms.

China’s home sales continued to slump in December, with the 100 biggest developers seeing new home sales dropping 30.8 per cent from a year earlier. Investors are now betting on further stimulus on the demand side to reverse the downturn amid Covid outbreaks.

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The limit on commissions may reduce transaction costs for existing homes in some of China’s biggest cities, where a starter house can cost more than US$700,000 and most agents charge fees of between 2 per cent to 3 per cent. In a campaign aimed at “notably improving order” in the property sector in 2021, the housing ministry cracked down on violations by institutions including property agencies.

Regulators liberalised real estate transaction fees in 2014, and commissions have been on the rise ever since. Nationwide, agency fees for existing homes climbed to an average 2.5 per cent in 2019 from about 2.1 per cent in 2014, according to a Ping An Securities report in 2021. KE Holdings and 5I5J Holding Group are among the biggest real estate agents in China. KE Holdings dropped more than 3 per cent in pre-market trading before closing 7.8 per cent higher in New York on Thursday (Jan 5).

The potential commission cap might not impact KE Holdings’ revenue, according to Bloomberg Intelligence analysts Kristy Hung and Lisa Zhou. “Though it earned 2.9 per cent on new-home sales, developers’ push to offload units in a weak market means they could find ways to compensate agents even if there’s a cap on commission,” they said in a report on Friday. BLOOMBERG