URA looking into property agents' commissions, say sources
Observers suggest additional scrutiny could come in the form of requiring developers to declare how much they pay agents.
The Urban Redevelopment Authority (URA) is sussing out the latest commission rates that developers pay to agents to sell new private residential properties in Singapore, The Business Times (BT) understands.
Industry participants told BT that URA recently queried housing developers on how much they are offering property agents to market their new launches. This comes amid a spike in commissions and market speculation of fresh cooling measures, as home prices remain on an uptrend despite economic woes.
In response to BT's queries, a URA spokesperson said: "URA does not regulate the commission rates paid by developers to their appointed sales agent. As part of our monitoring of the property market, we engage developers regularly to obtain information and provide feedback."
Developers typically pay agents commissions of 1-3 per cent of the transaction price, to incentivise the agents to push more sales of private homes in the primary market.
These can go up to 5 per cent to clear projects that are slower to move. Developers are sometimes under pressure to drum up sales, as they have to complete the project and sell all units in five years to qualify for upfront remission of the additional buyer's stamp duty on the land purchase price.
Even fatter commissions of 8-10 per cent are possible for "special" units such as penthouses, or homes with odd-shaped layouts, as these tend to be less popular with buyers, BT understands. Higher commissions could also be offered if agents clinch a higher sale price above a certain tier, especially for luxury homes.
The Council for Estate Agencies (CEA) also does not regulate or fix the commission rates charged by property agents. CEA's website as at Thursday states that commissions are determined by market forces.
Observers have suggested that additional scrutiny could come in the form of requiring developers to declare how much they pay agents.
One market participant said that if a cap on commission rates is imposed, it could help level the playing field. Developers will be able to focus on creating liveable, well-priced projects with amenities catering to buyers' needs, instead of worrying about offering ever-higher commissions than competitors.
Lee Nai Jia, deputy director of the Institute of Real Estate and Urban Studies at the National University of Singapore, said that theoretically, a cap can improve transparency in the market and benefit both buyers and developers.
"Developers can better estimate their costs if there's a limit on commissions, unlike the current situation which may lead to a race to the top for commissions especially if a few projects are launched at the same time."
Moreover, some agents have been giving a cut of their high commissions to buyers indirectly, to sweeten the deal. Such payments go against CEA guidelines, and may be disguised as "cash back" or "referral fees" via the buyer's friend or relative.
The practice causes distortions in the private housing market, as it essentially inflates sale prices. Commissions are captured under a developer's cost of sales and thus do not affect the headline prices that developers report to URA. The reported prices are then used to calculate the authority's private home price index.
By capping commissions, there will be less room for agents to offer kickbacks. Buyers can also have a more accurate picture of market conditions, and know what goes into the pricing of homes, Dr Lee said.
However, it may not solve the problem entirely, as the full extent of these kickbacks is still unknown, errant agents are not identified, and in practice it is difficult to monitor all the channels through which errant agents and sellers may use to bypass a cap, Dr Lee said. "We should instead incentivise the buyers to disclose the kickbacks."
As certain units - such as odd-shaped ones or those with high quantums - are not easy to sell, agents in Singapore turn to overseas agents to help identify potential buyers abroad. "If the commission is just 2 per cent, it'll be difficult to find an overseas agent to co-broke the deal, as overseas agents tend to command higher commissions to sell homes," Dr Lee said.
A hard cap on commissions could slow down sales of specific units, instead of cooling overall demand.
ERA Realty key executive officer Eugene Lim does not see a need for a cap because the majority of commissions are still at "standard rates" due to the competitive nature of the property agency business.
RHB analyst Vijay Natarajan likewise said it might be best to leave agent incentives to market forces.
Savills Singapore executive director of research and consultancy Alan Cheong thinks regulations targeted at agents will not have a significant cooling effect on the market: "There's only so much agents can do to fan demand. If sentiments are negative, purchases will be unlikely no matter how much the agents spin a positive story, and vice versa."
Colliers International's senior director of investment services Steven Tan noted that agents may work even harder to move more units to earn their desired total amount of commissions, if there were a cap per deal.
Last month, Deputy Prime Minister Heng Swee Keat said the government is paying "close attention" to the local real estate market "to ensure that it remains stable", and that "we must continue to enable young Singaporeans to own their home".
Source: Business Times © Singapore Press Holdings Ltd. Permission required for reproduction.