According to a source from Bloomberg, the Chinese government is considering adjusting the brokerage fee to sell houses to foreign investors real estate agent across the country, in particular by imposing a ceiling on brokerage fees.
Fee ceiling agency under consideration can range from 2% to 2.5% of the selling price. The source said, if applied, this ceiling brokerage fee will be adjusted every 1 to 3 years depending on market developments.
No final decision has been made by the Chinese Government on the application period or the ceiling brokerage fees but it is likely that this policy will be implemented by the end of January 2023.
The brokerage fee ceiling is one of the policies implemented by the Chinese Government recently to revive the real estate market. This is an area that has been heavily affected by real estate developers’ difficulty in accessing loans and the blockade order due to the Covid-19 epidemic.
The Chinese government’s measures so far have mainly focused on the supply side, by increasing financing for developers and loosening credit for major real estate companies.
Home sales in China continued to decline in December 2022. A survey of the country’s 100 largest real estate developers showed that new home sales fell 30.8% compared to 2021.
Investors are expecting further support measures for the demand side to ameliorate the downturn amid the outbreak of the Covid-19 pandemic.
Setting a ceiling on brokerage fees is likely to reduce the transaction cost of a home in some of China’s major cities. In these places, the primary sale price of a home can be as high as $700,000, and most real estate agents charge a brokerage fee of 2% to 3% of the sale price.
In a campaign to “improve order” in the real estate sector by 2021, China has harshly dealt with violations by entities, including real estate companies.
Real estate agents in China have been free to charge brokerage fees since 2014 and brokerage fees have increased since then.
According to a report by Ping An Securities in 2021, brokerage fees for a home in China in 2019 averaged 2.5% of the selling price. Meanwhile, the average brokerage fee in 2014 was 2.1% of the selling price.
Bloomberg Intelligence analysts said that imposing a brokerage fee ceiling may not affect the revenue of large real estate agents such as KE Holdings or 5I5J Holding Group. Because investors will also find ways to compensate agents even if a ceiling of brokerage fees is applied.