News & Views Aug 2023

Agents brace for lean times as commissions take hit from slowing home sales

SEVERAL rounds of policy changes and a market slowdown have taken a toll on real estate agencies’ revenues, and agents are steeling themselves for lean times ahead. 

Singapore’s two largest real estate agencies, PropNex and Apac Realty, which operates the ERA franchise, recently posted steep drops in commission income in their interim earnings reports. 

PropNex’s revenue shrank 22.9 per cent to S$364.3 million, its lowest since 2020. Revenue from both its agency services and project marketing services segments fell sharply in the six months ended June 2023. Net profit dropped 18.4 per cent to S$22.1 million from S$27 million. 

Apac Realty’s revenue dropped 24.2 per cent to S$259.6 million from S$342.6 million; net profit dived 70 per cent year on year to S$5 million from S$16.7 million. 

This comes at a time when transaction momentum has slowed and prices in the residential market are expected to ease after the highs of the last two years. Gone are the days of new launches selling 80 per cent of the project in the first weekend; sales are moving much slower now.

Agents typically earn between 2 per cent and 4 per cent on marketing new projects, with developers sometimes throwing in additional incentives to push sales. For the private resale market and Housing and Development Board (HDB) properties, agents can earn 2 per cent on commissions.

I cannot deny that the private (property) market is slowing down,” said Huttons Asia’s chief executive officer Mark Yip. “But whether it is perceived as a long drought or it is just an interim knee-jerk reaction is largely policy-driven,” he told The Business Times (BT).

OrangeTee & Tie associate director Jim Leong, who has been in the real estate marketing business for seven years, pointed to pandemic constraints leading to limited supply and subsequently, fewer transactions. 

“Buyers will need time to get used to the new prices, and sellers generally have strong holding power and may not lower their prices too drastically,” he added. 

The property market has witnessed three rounds of cooling measures since December 2021, with the latest in April 2023 targeted at foreign buyers and investment buying. With these measures in place, the persistently high interest rates and inflation have taken the wind out of the market’s sails.

Agencies that spoke to BT agreed that the housing market is also getting more competitive, with buyers feeling cautious and purchases being held back. 

“On the ground, buyers nowadays buy on a need basis,” said Melvin Lim, CEO and co-founder of PropertyLimBrothers (PLB). In the current market, it is mainly locals buying properties for their own occupation rather than for investment purposes, he said. The many rounds of cooling measures have also led homeowners to hold on to their properties, rather than sell, he added.     

“2021 was a unique year, when most properties flew off the shelves due to a combination of factors – the end of the ‘circuit breaker’, easing of Covid restrictions, people getting bigger properties due to work-from-home arrangements, and travel restrictions which had spilled over from 2020 to 2021,” said Lim.

As the first half of 2023 brought several major new launches to the market with thousands of units available at once, Huttons’ Yip said buyers have remained price-sensitive, typically going for projects with good location attributes and priced below the S$2 million benchmark.    

Although commission levels have dropped in 2023 from 2021 and 2022, PLB’s Lim expects transaction volume for the second half to be similar to the first half of this year.

He said he expects no changes to transaction volume in the second half of the year, and “having more launches in the market will (help) motivate people to shop around more and think about moving, changing to a new home or upgrading”.

PropNex Realty’s executive chairman and CEO Ismail Gafoor agreed things would pick up in the second half, with more launches expected.

“Transaction volume is expected to be marginally higher or the same as last year for private properties,” he told BT. In public housing, he expects the HDB market to remain buoyant, with 27,000 to 28,000 units changing hands, similar to last year’s volume.

OrangeTee’s Leong was less sanguine, noting that “the second half of 2023 will either be stagnant or worse off”. “Statistically, Q4 sales are usually lower than the first three quarters of most years,” he noted. 

While the HDB’s new framework for Build-to-Order (BTO) flats would keep a lid on resale prices in the longer term, some agents reckon the market could see more transactions in Standard BTO and resale flats in the near future.

But if prices of Standard BTO flats and resale units were to start moving up too quickly, this may warrant other policy changes in the future, cautioned Huttons’ Yip.

For now, it is business as usual, said Marcus Chu, CEO of ERA Singapore, ERA Asia-Pacific and Apac Realty. As the bulk of HDB flats will not see any changes to their resale conditions, he does not foresee any decrease in transaction volume.

With the market pie getting smaller, consolidation and acquisitions may be on the horizon. 

OrangeTee’s Leong said that “there is some amount of anxiety among agents, and it can be felt through movement of agents to other larger agencies”. 

Propnex said its sales force has increased from 6,600 in 2018 to about 12,000 today, and the company has been the biggest beneficiary for such cross-agent movement over the years.

With about 40 per cent to 50 per cent of market share now for new project launches, PropNex’s Ismail said the company is “looking at crossing 60 per cent market share, with 15,000 sales persons onboard within a year”.




Managing distortions from people parking money in Singapore property


IN DENSELY populated Singapore, living in a detached home in a Good Class Bungalow (GCB) Area can offer one a haven – a luxurious abode sitting on land of over 15,000 square feet, ensconced in leafy enclaves in prime locations.

Living in a GCB also confers social status. These homes can be great for entertainment, personal wellness, family gatherings and business meetings.

By affording privacy, these houses might also be useful for those engaging in shady activities who want to avoid nosy neighbours – or law enforcement.  

Recently, the Singapore Police Force conducted a blitz that nabbed several foreigners for their alleged involvement in a billion-dollar money-laundering case. Ten foreign nationals, who were living in GCBs, a Sentosa Cove bungalow and luxury condos, have been charged over their suspected involvement in offences including forgery, money laundering and resisting arrest. 

Properties feature large in this money-laundering case with alleged links to a Fujian, China, syndicate. Prohibition-of-disposal orders have been issued on 105 properties here with an estimated worth of S$831 million. The properties comprise multiple Sentosa Cove bungalows, condo units, and commercial or industrial spaces.

It’s unsurprising that money launderers targeted buying properties here. Local property is attractive to people looking to park large sums of money, especially monies made from risky activities, in something safe. Think of people who have profited from trading in volatile assets such as cryptocurrencies, or enjoyed a windfall from a commodity boom, or prospered due to links with politically powerful persons.

Many properties here are worth several million dollars or tens of millions of dollars each, or more. The local currency is strong. Property prices across various segments have been resilient over the Covid pandemic. Between Q4 2019 and Q2 2023, private home prices rose 27 per cent, according to data from the Urban Redevelopment Authority (URA). There is healthy leasing demand for homes, offices, retail spaces, warehouses and industrial facilities. 

Political stability, excellent infrastructure and good urban planning also give investors confidence in the local property market. 

While yields across different property types here may be low, many buyers expect capital gains. There is also ample liquidity for physical property, and there is zero capital gains tax on the sale of physical properties. 

One might consider buying listed equities instead. But one may find difficulty buying large chunks of shares in some companies that are tightly held. A solely-owned property also gives greater control versus being a minority investor in a listed entity.  

Today, transaction costs are high for many homebuyers here. Singapore citizens pay Additional Buyer’s Stamp Duty (ABSD) of 20 per cent for buying a second home, and 30 per cent for buying a third and subsequent home. Non-permanent resident foreigners buying any home pay ABSD of 60 per cent.

But transaction costs are generally much lower for buyers of non-residential properties – ABSD does not apply. The Buyer’s Stamp Duty for non-residential properties is between 1 per cent and 4 per cent for the first S$1.5 million of the price, and 5 per cent for amounts over S$1.5 million.

Anti-money laundering

In reality, Singapore has many attributes to its credit, and these are the same factors that may draw money launderers. It is a hub for finance and professional services. It is known for the ease of doing business. It enjoys good connectivity to many countries and is a cosmopolitan society with a large population of foreigners. For a price, one can live very well in Singapore, with its many luxury homes, high-end boutiques, luxury car dealers, art galleries, country clubs, marinas and Michelin-star restaurants.

However, persons looking to launder money through Singapore property should take heed. Anti-money laundering laws here are tough, and enforcement action is strong. 

The Monetary Authority of Singapore (MAS) is firmly committed to safeguarding Singapore as a clean and trusted financial centre. Combating money laundering, terrorism financing and proliferation financing are priorities for MAS, and financial institutions are required to have sufficiently robust controls to detect and deter such illicit activities. MAS also partners the industry to bolster their defences, by engaging them on emerging risks, evolving criminal typologies and industry best practices. 

With effect from Jun 28, the Urban Redevelopment Authority has implemented new requirements for developers against money laundering and terrorism financing.

Developers are required to conduct customer due diligence checks on all transactions of uncompleted residential and non-residential properties regulated under the Housing Developers (Control & Licensing) Act and Sale of Commercial Properties Act. 

Real estate agents also have onerous obligations to comply with to prevent money laundering and terrorism financing.

Given the huge sums of money involved, there is much work to do to prevent money laundering through real estate. Agents and developers must not be tempted to close deals, however lucrative, if they are doubtful over the source of buyers’ funds.

By being vigilant in fighting money laundering, Singapore can maintain a good reputation as a financial and wealth management centre, so that these key economic sectors continue growing.

Apart from reputational damage, money laundering has another important effect – interest from looking to recycle outsized or illicit gains into something safe may distort the property market here.

Shophouse prices could be bid up such that a local business owner cannot afford to buy such a property to house his operations. Centrally-located strata office spaces may be snapped up at lofty prices to the detriment of local services firms looking to buy space for their own use. Hot money may pay a crazy price for a home, thereby generating hype and potentially some irrational market exuberance.

A well-funded party could enter the property development market here with relative ease and bid aggressively to buy land. This may drive up land prices and selling prices of properties.

There are possible ways to better protect the private housing and commercial property markets from distortions. Tightening who can buy what type of property is one way, just like how strict eligibility conditions apply to buyers of Housing and Development Board flats in the primary and secondary markets.

Some possible regulations are to restrict foreigners from buying commercial shophouses or foreign non-listed entities from undertaking property development, and limit the number of properties that individuals can own.    

However, on balance, keeping some parts of Singapore’s property market largely open to whoever has buying power, provided the source of funds is not illicit, makes sense in a city that lives from being a connector to many parts of the world.   








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