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Brokers Take Advantage of Recession in Real Estate
Property brokers are taking advantage of the slowdown in the residential real estate market by increasing the commission they charge from developers. As house and apartment sales sag, brokers, who typically charged 2-5% of the value of the property as commission, are demanding as much as 8-9%. “The slump in sales is so dramatic that developers are willing to pay a higher commission,” says Sanjay Sharma of Gurgaonscoop.com, a website on the real estate market in Gurgaon, a New Delhi suburb. “Earlier, an 8-9% commission was given by weak or smaller developers… Now the trend is even developers of large luxury projects are giving 8-9% commission.”
According to Sharma, developers are willing to pay double the usual commission if the broker has a ready buyer. “It is not a seller’s market anymore,” says Sharma. “Buyers have the upper hand and real estate agents who can get a buyer are asking for higher commissions.” Developers are struggling as potential homebuyers stay away from property. Slowing economic growth—estimated to drop this year to the least in six years—and more expensive bank loans have dented apartment sales and values. In New Delhi and its suburbs, for instance, inventories of unsold homes are piling up as buyers wait for prices to drop further. In the boom time between 2005-07, the housing market was so hot that some developers had even decided not to hire real estate agents to broker deals, says Sharma. “A few developers had tried to marginalize brokers and deal directly with the buyers,” he said. “In south India, developers can sell without brokers but here it is not possible… Developers have realized that and even those who ignored brokers earlier have now started to engage them.”
There is uncertainty and fear among developers and brokers, says Priyankar Bhikshu, associate director, consulting and research, DTZ India. “When the market was good, payment from developers was forthcoming,” he said. “However with payments to brokers becoming an issue, maybe brokers are demanding higher fees to cover their credit risk.” Bhikshu says that in a way the higher commission also shows the desperation of developers to sell property. “In today’s market even the sale price is negotiable,” he said. Real estate transactions have come to a virtual standstill, especially in New Delhi and its suburbs of Gurgaon, Noida and Greater Noida.
“While enquiries are being generated, deals are not maturing,” said Vishal Saxena of Hindustan Real Estates Pvt. Ltd, a real estate agency. “Buyers are taking a feel of the market and are waiting for prices to go down further while builders are not mentally prepared to drop prices because they think it’s a temporary phase.” Earnings of real estate brokers have come down substantially, says Saxena. “Brokers are just sitting idle… There are no customer walk-ins or phone calls from buyers,” he said. In the last three-four months, Saxena has closed just two-three deals in the residential segment and they were all at a higher commission slab.
The fall in real estate transaction has hurt brokers more than the drop in real estate prices, says Bhikshu. “Brokers are the most impacted among all the stakeholders in real estate,” he said. “A broker who has already incurred overheads and has a shop to maintain is badly impacted.” Not every agent, however, agrees that brokers are winning higher commissions. Kumud Girdhar, a real estate agent, says that there has been no change in the commission slabs. “The only thing that has changed is that buyers now get a higher discount on cash down payments,” Girdhar said. Cash down payments are upfront payments for a property which is usually up to 95% of the total price of the apartment. “Earlier, the discount given was 7-8% and now this has gone up to 15%.”
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