Chinese developers, hit by tighter liquidity and a widespread anti-graft campaign, are delaying paying fees to realtors who help them sell new projects, according to the nation’s biggest real estate brokerage.
Centaline Group, which owns Centaline Property Agency Ltd., has about 1 billion yuan ($161 million) of uncollected receivables due, group founder Shih Wing Ching said in an interview. Developers pay the fees only after they they get the sales proceeds, he said.
“It used to be easy for buyers to obtain mortgages, then the developers will pay commissions,” Shih said on July 4 from his office in Hong Kong, where Centaline is based.
Property services businesses such as Centaline are being affected by the slowdown in China’s property industry, prompted by the government’s four-year effort to rein in prices and a surplus of empty units. Home sales from January to May slumped 10 percent from a year earlier, a stark contrast to the 27 percent surge in 2013, even as developers tried to boost sales by slashing prices and offering incentives.
Project launches are also being delayed as developers can no longer “offer advantages” to officials in order to speed up pre-sale approvals amid a fledging crackdown on corruption, Shih said. The old system of doing business is being overturned, he said.
“Aside from disruption to the developers’ liquidity, our customer base is also affected by the anti-corruption drive,” he said. “In the past, officials and their relatives made up between one-fourth and one-third of buyers.”
Centaline, which receives about 10 billion yuan in commissions a year, has cut about 10 percent of staff in China from last year to about 40,000 people, according to Shih. Home prices will continue to fall, especially in second- and third-tier cities where even offering discounts won’t be enough to stimulate enough demand, he said.
New-home prices in May fell in 35 of the 70 cities tracked by the government, the most in two years, China’s statistics bureau said last month. Prices in Hangzhou, considered a second-tier city, fell 1.4 percent on month, the largest decline, while they gained 0.2 percent in Beijing.
The nation’s central bank called on lenders in May to accelerate granting of mortgages for first homes, a sign that the government is seeking to put an end to the housing slump.
China’s northern city of Hohhot became the first city to ease home-purchase restrictions last month. Residents of the provincial capital of Inner Mongolia, previously limited to how many properties they can buy, no longer need to show ownership proof of home purchases. Non-residents will also be allowed to buy homes in the city, according to a statement on the local housing authority’s website.
Shih is more optimistic about Hong Kong, where the closely held realtor has almost a 30 percent share of the residential market. The 65-year-old founder started the company, which has 320 branches and 4,600 staff in the city, in 1978.
The Centaline index, which tracks existing home prices in Hong Kong, could reach a record high in the third quarter, driven by demand for small to medium-sized flats, he said, reversing a forecast made in April for a 5 percent to 10 percent drop this year. It has gained 1.9 percent this year, having advanced for four straight weeks.
Home prices, which more than doubled since 2009 on near-record low mortgage rates and mainland Chinese demand, have moderated since the Chief Executive Leung Chun-ying imposed curbs, including an extra 15 percent tax on overseas buyers, since he took office in July 2012.
Prices have started to rise again as developers such as Cheung Kong Holdings Ltd. and Sun Hung Kai Properties Ltd. are luring buyers back with discounts and interest rates remain low.
The city’s interest rates track those in the U.S. because of the local currency’s peg to the U.S. dollar.
“For homeowners, there’s still another year or two before interest rates start rising, so why wouldn’t I buy now to enjoy this period of low rates?” Shih asked. “Whether rates will rise by 2016 is still a question mark.”
The outlook for Hong Kong’s property market is still clouded by macroeconomic factors such political instability in the city and the government’s curbs, Shih said. Protesters staged the biggest march in a decade on July 1, calling for China to grant full democracy for leadership elections in 2017. An activist group is also planning a sit-in protest in the Central business district if their election demands aren’t met.
“Hong Kong’s politics are moving to two extremities,” Shih said. “When there’s political instability, it’s hard to attract investments, especially for real estate, which is an immovable asset.”