Brokers out of commission as developers delay payments

A HomeLink property brokerage in Beijing. Floor area sold in May dropped 10.8 percent from a year earlier, while contracted sales value decreased 11.3 percent. [Photo/China Daily]

Cash-strapped property developers grappling with a deepening slump in the nation's housing market are delaying huge amounts of fees due to real estate brokers.

Li Yaozhi, general manager for South China with Centaline Property Agency Ltd, one of the biggest brokerages in China, told reporters last week in Shenzhen that developers owe Centaline more than HK$3 billion ($387million) in commissions.

In Shanghai, a Centaline employee posted a picture on the Weibo micro-blogging service that showed several Centaline employees staging a protest demanding commission payments from a developer named Changtai.

A sales director with one of the biggest real estate agencies in Shanghai, who declined to be identified due to corporate policy, told China Daily on Wednesday that nearly all brokerages in the city have com-missions due from developers, with the proportion in some cases reaching up to 70 percent. "It's been an established industry practice here that brokerages will advance the commissions to sales agents first before the developers make the payment.

"But this year, the length of the delays and the amounts due have gotten to the point where it starts affecting the brokerages' own financial health," the source said.

Official data published on Wednesday showed that China's average home prices fell for the first time in two years in May.

The National Bureau of Statistics said that home prices dropped 0.2 percent in May from April, with 35 of the 70 cities polled recording a decline, up from eight cities in April.

On a year-on-year basis, new home prices increased 5.6 percent in May, down from a 6.7 percent rise in April and the slowest annual rise in 13 months.

Sales also fell. Floor area sold in the month dropped 10.8 percent from a year earlier, while contracted sales value decreased 11.3 percent.

Liu Jianwei, a senior NBS statistician, said in a news release accompanying the data that the price declines in May were caused by a combination of high inventories, developers' promotions and buyers taking a wait-and-see stance amid unclear market conditions.

The China Banking Regulatory Commission said on June 6 that it's closely watching developers' cash flows and the impact on the banking system.

In a report last month, Goldman Sachs Gao Hua Securities Co Ltd wrote that China's 110 listed property companies' cash inflows from sales fell 35 percent quarter-on-quarter in the first quarter.

Meanwhile, the ratio of their capital expenditure to their cash inflows from sales rose to 117 percent in the first quarter from88 percent in the fourth quarter. That was the highest level since the first quarter of 2010, when the ratio was 130 percent.

Second-quarter data isn't yet available.

Shi Hongrui, managing director of Shanghai-based Hanyu Property, told the Oriental Morning post on Monday that developers owe the brokerage 120 million yuan ($19.5 million) in commissions, accounting for 30 percent of its revenue last year.

"Some big developers don't pay us cash at all and give us apartments as commission." Shi told the Shanghai-based newspaper.