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Commissions have doubled. By Kalpana Rashiwala in Singapore
Developers in Singapore are paying property agents bigger commissions _ in some cases almost double what was offered a year ago _ to push their new residential project launches. This is because the environment for selling homes is far more challenging now and agents have to work much harder to persuade potential buyers to part with their money.
A modest-sized developer told Business Times that he did not mind rewarding agents with commissions of 2% or more as, to him, speed of sales was paramount. He needs to achieve enough cash flow to begin construction and move on to his next project. But even the big boys are having to pay a higher commission rate to agents _ if they want their help to move units.
An established developer launching a big project these days could pay its appointed marketing agent 0.8% of the sale price _ compared with 0.5% 12 months ago. The commission these days may go up to 1%, once a certain number of units have been sold.
Developers of smaller projects, for instance in the Telok Kurau area, are understood to be paying even higher commissions _ often up to 2% _ compared with around 1% or less a year ago, agents and developers say. On top of that, some developers are offering bonuses of 0.5% if the project sells out within a certain time frame and at a price exceeding the developer's target.
High-end projects have not been spared. Their developers are having to reward agents with 0.7 to 1.5% commissions _ up from 0.4% to 0.5% a year ago.
''Speed of sales is most important to us. We don't want to target sales of just 30-40% of total units in a project. We need to sell 80-90% or even 100%. We can then begin construction, and move on to our next project,'' says Teo Hong Lim, executive chairman of the property group Roxy-Pacific Holdings.
''At the end of the day, agents are also very much incentivised by commissions. It's a sort of a no-lose situation for us when we achieve speed of sales and the final net sales value of a development is higher than our initial target, even after we [deduct] the additional bonus commissions we pay the agents.''
While some market watchers may think that paying agents higher commissions will eat into the developers' profit margins, Mr Teo argues: ''Commissions are only part of our total project cost. It's definitely much, much lower than land and construction costs.''
A property agent says: ''Developers are more concerned with cash flow and sales take-up. The higher commission is a small amount to pay for boosting their cash flow.''
Knight Frank executive director Peter Ow says agents need higher motivation. ''The main reason for increasing our fees is that we're operating in a tougher market and, frankly, agents are highly motivated by fees. If you get two projects side by side, most agents will naturally push for the one where the reward is higher.''
Industry players acknowledge that agents have to work a lot harder to convince buyers, given the more cautious outlook, thinner foreign buying and the fact that fewer speculators are left after the deferred payment scheme was scrapped.
The extra work being put in by agents these days to realise sales at show homes includes studying the project's costing. ''We tell buyers the price we're offering is below current replacement cost, either because the developer bought the land cheap or locked in construction costs early,'' said one agent.
''Sometimes we also use pressure tactics. We tell potential buyers that the developer will raise prices once it achieves a certain percentage of sales. And it works.''
Published in Business Times (Singapore) on July 9
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