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.
(Bloomberg) — 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% to 2.5% 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% from a year earlier. Investors are now betting on further stimulus on the demand side to reverse the downturn amid Covid outbreaks.
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 $700,000 and most agents charge fees of between 2% to 3%. 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 liberalized 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% in 2019 from about 2.1% in 2014, according to a Ping An Securities Co. report in 2021. KE Holdings Inc. and 5I5J Holding Group Ltd. are among the biggest real estate agents in China. KE Holdings dropped more than 3% in pre-market trading before closing 7.8% higher in New York on Thursday.
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% 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.
–With assistance from Emma Dong.
(Updates shares price in eighth paragraph and adds Bloomberg Intelligence report in last paragraph.)
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