Developers dangle higher commissions to clear less ideal units

Some developers are dangling fatter commissions to incentivise property agents to help clear inventory.

A check with property agents suggested that commissions in some cases could rise to 3-4 per cent, or more. Developers may also wheel out incentives or a cash bonus when it comes to units that are harder to sell, such as ground-floor units or units with a less-attractive facing, as agents need to work harder to find suitable buyers once the choice units are snapped up.

“It has been mostly the boutique to mid-sized developers who pay out higher-than-normal commissions for the unsold inventory in their high-end basket of projects,” said Alan Cheong, Savills’ executive director (research & consultancy).

“In today’s market, agents expect developers to pay a minimum of 2.3 per cent commission for them to be motivated to clear any project.

“And for a boutique project, to get the visibility up, the commissions must be higher than 2.3 per cent.”

Developers must develop and sell all units within five years to qualify for upfront remission of the 25 per cent additional buyer’s stamp duty (ABSD) on the land purchase price.

Commissions rose to around 1.5 per cent last year after the cooling measures in July and have picked up further this year, added Mr Cheong. He went on to note that this has come as the initial month launch sales rate has halved from 22 per cent in 2H18 to 12 per cent in 1H19, owing to a slew of launches, many of which are selling at record highs for their respective districts.

ERA Realty’s head of research and consultancy, Nicholas Mak, said: “It makes more sense to offer agents higher commissions as opposed to cutting prices across the board. This could also lead to a price war with other developers, which is a lose-lose situation.”

In addition, if developers offer rates under the market norm, there is the risk that agents may direct their buyers elsewhere, Mr Mak pointed out.

He reckons such higher commissions are more prevalent for higher-end projects, where there are relatively fewer buyers of such properties with large price quantums.

“Buying sentiment seems to have returned to the market, so it’s a good time (for developers) to capitalise on this to lock in sales,” said one market watcher, who declined to be named. At the same time, he pointed out that there are still iconic projects that are selling well based on other factors, such as location.

According to The Business Times, SL Capital’s Sky Everton is offering commissions of up to 3 per cent, while the Affinity at Serangoon – developed by a consortium led by Oxley Holdings – is said to be offering up to 3.7 per cent.

The commission for The Florence Residences by Logan Property is understood to be 1.8 per cent but there are additional cash incentives – which can range from S$5,000 to S$20,000 – for certain units.

Commissions can vary depending on whether the agent is a direct marketing agent for the development or from a different agency. In addition, some commission schemes are for a limited time only.

However, there are also instances where developers are offering commissions under 2 per cent. This could be due to expectations of strong demand for the project, one consultant suggested. Having to dole out big commissions would mean additional pressure on developers’ profit margins, which are already feeling the impact of higher land costs, increasing competition and ABSD.

Frasers Property’s luxury development Rivière is understood to be offering a commission of 1.8 per cent, while the commission for City Development Limited and TID’s EC Piermont Grand is said to be around 0.9 per cent.

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