URA probes into agents’ commission rates

February 5, 2021

The move comes amid a hike in commissions as well as market speculation of new cooling measures as residential property prices continue to increase despite economic woes.

The Urban Redevelopment Authority (URA) has queried housing developers on the latest commission rates they pay property agents to market new private homes in Singapore, reported The Business Times (BT) citing industry participants.

The move comes amid a hike in commissions as well as market speculation of new cooling measures as residential property prices continue to increase despite economic woes.

Developers usually pay agents commissions of 1% to 3% of the transaction price. The commissions can go up to 5% to clear slow moving projects. Developers have to complete a project and sell all units within five years for them to qualify for upfront remission of the Additional Buyer’s Stamp Duty (ABSD) on the land purchase price.

Higher commissions of 8% to 10% may be offered for “special” units like penthouses or houses with odd-shaped lots since they tend to be less popular among buyers, noted BT.

Recommended article: Property Owner’s Dilemma: How Much Should I Pay My Estate Agent?

Fatter commissions may also be given if agents achieve a higher sale price above a certain tier, particularly for luxury homes.

In responding to BT’s queries, a spokesperson for URA said they “do 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”.

The Council for Estate Agencies’ (CEA) website stated that commission rates are determined by market forces.

However, one market participant suggested imposing a cap on commission rates to help level the playing field, said BT.

Theoretically, placing a cap can improve market transparency, while benefitting both buyers and developers, said Lee Nai Jia, Deputy Director of the Institute of Real Estate and Urban Studies at the National University of Singapore.

“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,” he said as quoted by BT.

Moreover, capping commissions provide agents less room to offer kickbacks. Some agents offer a portion of their high commissions to buyers indirectly. Such payments, which may be disguised as “referral fees” or “cash back” via the buyer’s relative or friend, go against CEA guidelines.

See also: 3 Times Property Agents in Singapore Broke the Rules (And What You Can Do)

This essentially inflates sale prices, causing distortions in the private housing market. Commissions are included under the cost of sales of developers, hence, do not affect headline prices that are reported by developers to the URA. The reported prices are used by URA to determine the private home price index.

With the cap, buyers will have a more accurate picture of market conditions, said Lee.

He acknowledge, however, that it will not entirely solve the problem since the full extent of the kickbacks remain unknown and the errant agents are not identified. It is also hard to monitor all channels used by errant agents and sellers to bypass a cap.

As such, Lee suggested incentivising the buyers to disclose the kickbacks.

Suggested read: Being a Property Agent: 4 Surprising Things You Might Not Know

Eugene Lim, Key Executive Officer at ERA Realty, believes there is no need for a cap since majority of commissions remain at “standard rates” due to the property agency business’ competitive nature.

Echoing his sentiments, RHB Analyst Vijay Natarajan said it may be best to leave agent incentives to market forces.

Alan Cheong, Executive Director of Research and Consultancy at Savills Singapore, does not expect regulations targeted at agents to 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,” he said as quoted by BT.

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