Chu Kin-lan has already shuttered six of 11 offices of her Hong Kong real estate agency, whose Chinese name translates as Precious Prosperity, and let go half of her 70 employees amid the city’s toughest curbs on home buying in its history. The worst pain may be still to come.
As many as 10,000 real estate agents are forecast to lose their jobs, according to Centaline Property Agency Ltd., as the government presses ahead with measures to rein in house prices that have more than doubled since 2009 and hit a record high in March. Because of the cooling measures, home transactions fell to 27,714 in the first half of the year, the lowest since data were first available in 1996, according to the Land Registry.
“We’re getting killed by the government here,” said Chu, who is in her 50s, has operated her Bo Fung Property Agency Group in Hong Kong island’s district east of Causeway Bay since 1984 and now sees some of her vacated branches replaced by eateries. “This is by far the worst I’ve experienced. Almost every agency I know is losing money and closing shops.”
The government has raised the minimum mortgage down payment six times since 2010 and imposed taxes including a doubling of the stamp duty on deals of more than HK$2 million ($258,000) in February, plus an extra 15 percent levy on non-resident buyers.
Prices have only come down about 3 percent since March, and the city remains one of the world’s costliest places to buy a home, according to property broker Savills Plc.
Home transactions in Hong Kong will probably drop about a third from 2012 to as low as 52,000 this year, the fewest since 1996, according to Knight Frank LLP. The number may fall to 45,000 next year, said the London-based property broker.
“The worst is yet to come,” said Angela Wong, an executive director at Hong Kong-listed Midland Holdings Ltd. “The pressure on brokers won’t go away as long as deal numbers stay at such low levels. It’s clear the government will impose more measures whenever they see things pick up slightly.”
Shares of Midland have declined 11 percent this year, set to drop for a fourth year. The benchmark Hang Seng Index is up 5.1 percent this year.
Government officials, including Chief Executive Leung Chun-ying and Norman Chan, head of the central bank, have repeatedly said the measures would stay in place until a steady supply of new housing is available to home buyers. Leung has said he will try to boost supply by accelerating land sales and the approval process for new home sales.
“The government is getting stuck in the middle,” said Eddie Hui, a professor in the real estate and construction department at Hong Kong Polytechnic University. “They understand what the agents are going through, but on the other hand, if they don’t go hard with the measures, the bubble will burst at some point and the property market will be in for a hard landing.”
Industry lobby groups, including the Hong Kong Real Estate Agencies General Association of which agency-owner Chu is the chairman, have staged street protests and pleaded with lawmakers to pressure the government into withdrawing some of the curbs. Chu, whose association represents more than 1,400 brokerages, estimated about 15 percent of the agents have left the industry this year.
The number of registered individual real estate salesman and agent license holders fell for the seventh straight month to 36,075 at the end of November, down from 37,173 in April, according to the Estate Agents Authority, a body set up by the government to regulate the industry.
That number will probably show a bigger decline over the next few months as holders choose not to extend their licenses when terms expire, Chu said. Individual brokers need to renew their licenses every year or two at a minimum cost of HK$2,010 annually.
“I just couldn’t see much future,” said Brian Ma, 27, who left his job at a property agency in July and is now a trainee at a securities brokerage firm. “I went a few months without getting a deal. It was just really tough to wait around.”
Ma had been an agent in Hong Kong’s southern Aberdeen district for four years and was earning about HK$20,000 to HK$40,000 a month prior to late 2012, when the government stepped up the property restrictions.
“The smaller brokerages are the ones taking the bigger hits,” said Sherman Lai, chairman of Centaline, the city’s largest closely held real estate agency, which has about 300 branches and 4,000 staff. “They pay high rents themselves and face falling transactions.”
Many are now relying on commissions from rentals rather than sales, he said. Brokers typically earn fees of about 1 percent of sales each from the buyer and seller, and developers sometimes pay more for new projects. For leases, the fee is about 1 percent of the monthly rents.
“We’re all fighting to survive,” said Herman Lee, an agent handing out fliers on the main road opposite The Avenue, a new residential project on Queen’s Road East in the Wanchai district. “At least we still have the new projects. But in this atmosphere, nobody knows what’s going to happen tomorrow.”
Lee, 23, who has been in the industry for a year, requested that his brokerage’s name not be revealed because he’s not authorized to speak on behalf of the company.
A typical agent at Centaline receives a base salary of HK$6,000 a month in addition to commissions, and most agents earn between HK$10,000 to HK$40,000 a month, said Lai. The median salary for Hong Kong workers was HK$13,000 for men in 2011 and HK$11,000 for women, according to the Census and Statistics Department.
“You can’t really live just on the base salary,” said Lai. “So a lot of those who aren’t getting the deals would quit the industry by themselves without us asking them to.”
Together with Midland, which has more than 300 branches in Hong Kong and had 9,576 employees as of midyear, the two brokers account for about two-thirds of the city’s total transactions, according to their estimates. That percentage is closer to 80 percent for new home projects, according to Lai, as developers prefer working with large brokerages because of their bigger branch networks.
In contrast, smaller brokerages, such as ones represented by Chu, normally feed on leases and sales of second-hand apartments.
Business has picked up for the two biggest brokerages over the past month as developers accelerate sales of new homes, said Midland’s Wong. The number of new home sales will probably reach 1,000 in November, the highest since March, according to Centaline’s estimates.
Weekend new-home sales climbed 13 percent from the previous week, Hong Kong Economic Times reported today, citing data from the government and property agencies.
A slowing market could also provide opportunities for the two big players to snap up smaller competitors, said Midland’s Wong.
The city’s last property downturn lasted six years from the onset of the 1997-1998 Asian Financial Crisis to the 2003 Severe Acute Respiratory Syndrome, when home prices fell almost two-thirds.
Midland bought Hong Kong Property Services Agency Ltd. from Cheung Kong Holdings Ltd. in 2000, increasing its branch network by 17 percent. The next year, Centaline bought Ricacorp Properties Ltd., then the city’s third-biggest realtor, for an undisclosed amount.
“It’s a very dynamic industry,” said Polytechnic University’s Hui. “I won’t be surprised if many brokers and agents choose to leave the industry. But they’ll come back once the market picks up.”