reporter2
23-03-22, 10:12
Can good times roll on for big property agencies?
Mar 22, 2022
https://i.imgur.com/qy2dT4l.png
SINGAPORE'S housing market prospered through the Covid-19 pandemic. As at Q4 2021, the Urban Redevelopment Authority's private home price index and the HDB Resale Price Index rose by 13 per cent and 18 per cent respectively versus Q4 2019. Excluding executive condominiums, developers sold 13,027 private homes in 2021, up from 9,982 units in 2020.
Housing developers and sellers of resale homes benefit from rising prices. But developers have faced construction delays and rising costs due to disruptions caused by the pandemic, which eat into financial returns. As for sellers of homes, while some may be laughing to the bank, others have to contend with rising prices when buying a replacement home.
The clear winners from last year's buoyant home market are the big property agencies. Strong transaction numbers and rising ticket prices per deal result in higher commissions. Moreover, the rate of commission can be around 3 per cent for new home projects today versus a rate of around 1 to 2 per cent some years back.
2021 was a bumper year for Singapore's 2 big listed property agencies. PropNex saw revenue grow 87 per cent year-on-year (yoy) to S$957 million and net profit up 106 per cent yoy to S$60 million. APAC Realty, which operates a real estate brokerage here under the ERA brand, posted a 115 per cent yoy increase in net profit to S$35 million as revenue rose 87 per cent yoy to S$740 million.
Bargaining power
Based on PropNex's results briefing slides, among Singapore's top 4 property agencies, PropNex had 11,125 salespersons as at Feb 17, 2022, followed by ERA, Huttons and Orange Tee & Tie with 8,404, 4,257 and 3,114 sales persons respectively.
Perhaps the size of the sales forces of the 2 market leaders places them in prime position to be marketing agents for major new home launches here and to secure mandates on attractive terms.
By having scale, the market leaders can reach out to a wider potential customer base, as well as invest in training, information technology and operations support.
The big agencies cannot be faulted for leveraging their bargaining power to get developers to pay them juicy success-based commission rates.
With sales slowing post the government introducing property cooling measures in late 2021, leaner times may loom for property agents. Developers here sold 527 new private homes in February, down 23 per cent from January's 680 units and down 18 per cent yoy.
Is it healthy for agencies to be paid fat sales commissions and will such a situation change? Should the rate of commission be regulated or developers be mandated to declare the commission rates that they pay to agents?
In orthodox economics, lower transaction costs improves market efficiency. But, homes are generally bought for long-term investment and there are high transaction costs relating to buyer's stamp duty and additional buyer's stamp duty (ABSD).
If developers pay agents a lower commission rate, it is unclear whether the savings will flow into developers providing better fittings or developers enjoying fatter profits or buyers paying lower prices.
In a market where land cost is high and the process of securing sites is transparent, housing developers are vigilant in monitoring costs so as to protect thin profit margins.
But while developers are hawkish on costs, the relatively small and fragmented private new home market puts big agencies in a strong position.
Developers often lack the volume to justify keeping large sales teams on their payrolls, especially as many do not have much landbank. Developers here typically adopt a predominantly outsourcing model, hiring third parties as builders, architects and sales agents, among others.
ABSD impact
The other feature of the private home market here that likely benefits the agents is the strict timeline that applies to remission of ABSD.
For sites bought on or after Dec 16, 2021, housing developers are subject to 40 per cent ABSD, of which 35 per cent ABSD may be remitted upfront, subject to certain conditions. One condition is that a developer must complete the housing development and sell all the homes within 5 years from the acquisition date.
The prospect of paying punitive taxes for failing to sell out all homes in a project within a stipulated time exerts pressure on developers to clear inventory. Thus, developers may opt to reward agents amply so their projects enjoy priority when agents are marketing homes. Also, in new condominium projects of a few hundred units or more, there may be stacks and configurations that are harder sells, hence the need to adequately incentivise agents.
In the 1990s when I first started buying equities, remisiers ruled the roost here. Today, remisiers are a dying breed. Trading in equities can be done cheaply online.
Technology has helped property agents - agents can engage effectively with potential buyers virtually and bring clients on virtual home tours.
Over time, might proptech players upset the apple cart of property agencies? The home agency market is lucrative and efforts of proptech players may be aided by a new generation of tech-savvy homebuyers.
As it is, big agencies will probably continue to have a strong hand, with developers likely to grudgingly pay fat commission rates to move inventory. Commission rates may even edge up as the potential pool of buyers is smaller and closing a deal may take more effort because of the property cooling measures.
Agents bear time, marketing and shoe leather costs, and need persistence and creativity. Agencies also invest in technology and back offices. Still, earning a few per cent of sales price on projects where gross development value can range from a few hundred million dollars to over a billion dollars or more can be very lucrative.
Given the animal spirits of free markets, expect rich rewards to tempt disruptors seeking a pot of gold through slashing frictional costs.
Disruption may in turn benefit society by diverting precious human capital in an ageing population away from being property agents, to other potentially more productive parts of the economy.
Mar 22, 2022
https://i.imgur.com/qy2dT4l.png
SINGAPORE'S housing market prospered through the Covid-19 pandemic. As at Q4 2021, the Urban Redevelopment Authority's private home price index and the HDB Resale Price Index rose by 13 per cent and 18 per cent respectively versus Q4 2019. Excluding executive condominiums, developers sold 13,027 private homes in 2021, up from 9,982 units in 2020.
Housing developers and sellers of resale homes benefit from rising prices. But developers have faced construction delays and rising costs due to disruptions caused by the pandemic, which eat into financial returns. As for sellers of homes, while some may be laughing to the bank, others have to contend with rising prices when buying a replacement home.
The clear winners from last year's buoyant home market are the big property agencies. Strong transaction numbers and rising ticket prices per deal result in higher commissions. Moreover, the rate of commission can be around 3 per cent for new home projects today versus a rate of around 1 to 2 per cent some years back.
2021 was a bumper year for Singapore's 2 big listed property agencies. PropNex saw revenue grow 87 per cent year-on-year (yoy) to S$957 million and net profit up 106 per cent yoy to S$60 million. APAC Realty, which operates a real estate brokerage here under the ERA brand, posted a 115 per cent yoy increase in net profit to S$35 million as revenue rose 87 per cent yoy to S$740 million.
Bargaining power
Based on PropNex's results briefing slides, among Singapore's top 4 property agencies, PropNex had 11,125 salespersons as at Feb 17, 2022, followed by ERA, Huttons and Orange Tee & Tie with 8,404, 4,257 and 3,114 sales persons respectively.
Perhaps the size of the sales forces of the 2 market leaders places them in prime position to be marketing agents for major new home launches here and to secure mandates on attractive terms.
By having scale, the market leaders can reach out to a wider potential customer base, as well as invest in training, information technology and operations support.
The big agencies cannot be faulted for leveraging their bargaining power to get developers to pay them juicy success-based commission rates.
With sales slowing post the government introducing property cooling measures in late 2021, leaner times may loom for property agents. Developers here sold 527 new private homes in February, down 23 per cent from January's 680 units and down 18 per cent yoy.
Is it healthy for agencies to be paid fat sales commissions and will such a situation change? Should the rate of commission be regulated or developers be mandated to declare the commission rates that they pay to agents?
In orthodox economics, lower transaction costs improves market efficiency. But, homes are generally bought for long-term investment and there are high transaction costs relating to buyer's stamp duty and additional buyer's stamp duty (ABSD).
If developers pay agents a lower commission rate, it is unclear whether the savings will flow into developers providing better fittings or developers enjoying fatter profits or buyers paying lower prices.
In a market where land cost is high and the process of securing sites is transparent, housing developers are vigilant in monitoring costs so as to protect thin profit margins.
But while developers are hawkish on costs, the relatively small and fragmented private new home market puts big agencies in a strong position.
Developers often lack the volume to justify keeping large sales teams on their payrolls, especially as many do not have much landbank. Developers here typically adopt a predominantly outsourcing model, hiring third parties as builders, architects and sales agents, among others.
ABSD impact
The other feature of the private home market here that likely benefits the agents is the strict timeline that applies to remission of ABSD.
For sites bought on or after Dec 16, 2021, housing developers are subject to 40 per cent ABSD, of which 35 per cent ABSD may be remitted upfront, subject to certain conditions. One condition is that a developer must complete the housing development and sell all the homes within 5 years from the acquisition date.
The prospect of paying punitive taxes for failing to sell out all homes in a project within a stipulated time exerts pressure on developers to clear inventory. Thus, developers may opt to reward agents amply so their projects enjoy priority when agents are marketing homes. Also, in new condominium projects of a few hundred units or more, there may be stacks and configurations that are harder sells, hence the need to adequately incentivise agents.
In the 1990s when I first started buying equities, remisiers ruled the roost here. Today, remisiers are a dying breed. Trading in equities can be done cheaply online.
Technology has helped property agents - agents can engage effectively with potential buyers virtually and bring clients on virtual home tours.
Over time, might proptech players upset the apple cart of property agencies? The home agency market is lucrative and efforts of proptech players may be aided by a new generation of tech-savvy homebuyers.
As it is, big agencies will probably continue to have a strong hand, with developers likely to grudgingly pay fat commission rates to move inventory. Commission rates may even edge up as the potential pool of buyers is smaller and closing a deal may take more effort because of the property cooling measures.
Agents bear time, marketing and shoe leather costs, and need persistence and creativity. Agencies also invest in technology and back offices. Still, earning a few per cent of sales price on projects where gross development value can range from a few hundred million dollars to over a billion dollars or more can be very lucrative.
Given the animal spirits of free markets, expect rich rewards to tempt disruptors seeking a pot of gold through slashing frictional costs.
Disruption may in turn benefit society by diverting precious human capital in an ageing population away from being property agents, to other potentially more productive parts of the economy.