Too many property agents? Cap commissions on home sales

Agencies should do fine with commission rates capped at 1.5 per cent

Leslie Yee

Apr 22, 2024

Much hard work and personal sacrifice is needed to reach the apex of any field. One may also need to be adaptable, constantly learn new things, have the right mindset and/or be lucky.

Kudos to Singapore’s top property agents whose drive has helped them attain enviable lifestyles.

The dream of achieving material success by being a property agent appears to be alive and well here, even as the volume of new private home sales in 2023 was the weakest since 2008.

In 2023, 6,421 new private homes excluding executive condominiums were sold, versus 7,099 units in the previous year.

However, the number of property agents at the start of 2024 was 35,251 – up from 34,427 at the start of 2023 and 32,414 at the start of 2022, according to data from the Council for Estate Agencies (CEA).

Sure, not every agent rakes in big bucks. Many struggle amid fierce competition. Earnings may fluctuate and marketing costs are high.

Still, a struggling agent should not complain as he or she would likely have entered the business with eyes open.

Given Singapore’s tight labour market, are there too many property agents?

Arguably, having some agents pivot to work in healthcare and social care or start new businesses could represent more productive use of human capital.

About 65 per cent of respondents who are senior executives in the property industry felt that there is an oversupply of real estate salespersons, according to a survey published by the National University of Singapore in March.

Among those polled, about a quarter suggested regulatory intervention via a cap on the real estate salespersons population, while 40 per cent felt otherwise. The other 37 per cent were unsure and remained uncommitted to either position.

As it stands, the government actively intervenes in the housing market. There are measures to boost supply as well as curb demand among investors and foreigners.

Perhaps, intervention can be considered to make the property agency business less lucrative by imposing a cap on the commission rate on housing transactions, instead of capping the number of agents.

Today, a private resale home seller might pay commission of 2 per cent or possibly less, subject to negotiations.

With new private housing projects, developers may offer commission of 3 per cent or more. The rate can escalate for projects with unsold units that are approaching the sales deadline, after which developers will see clawback on Additional Buyer’s Stamp Duty that was remitted upfront.

Presumably, developers agree to high sales commission rates following tough negotiations.

However, the market structure could be such that the large property agencies enjoy the clear upper hand in negotiations with developers over the sales commission rate for new homes.

The housing development market is fragmented with even bigger players accounting for a relatively small share of new homes sold. On the other hand, only a few big property agencies have the sales force numbers needed to effectively market larger-scale housing projects.

As at Jan 1, PropNex Realty and ERA Realty accounted for about six in 10 of the total number of property agents, according to CEA. The top five agencies – which also include Huttons Asia, OrangeTee & Tie and SRI – accounted for a combined 86 per cent of the total number of agents.

Fees earned from new private home sales were the top revenue contributor for listed PropNex Limited : OYY 0%, which owns PropNex Realty. Project marketing accounted for 29 per cent of the group’s revenue in 2023.



Capping the sales commission rate for homes at say, 1.5 per cent, will yield various benefits.

First, the cost of the middleman, namely the property agent, represents frictional costs.

Reducing frictional costs may result in efficiency gains. If the commission payable on new home sales declines, developers could channel savings into offering better fittings and furnishings or lowering selling prices.

Halving the commission rate of 3 per cent on a new S$3 million home yields a saving of S$45,000 per transaction.

Second, if sales commission rates are higher for some new housing projects versus resale homes, there can be market distortion.

Agents may naturally focus on getting potential buyers to look at new projects instead of resale homes.

Due to the higher commission offered, an agent might not act in a potential buyer’s best interest by steering the customer to choose a new home over a resale unit nearby, which may cost one-third less on a per square foot basis.

Third, limiting the ability of developers to use high commission rates to entice agents to push certain projects will help ensure that projects compete on a level playing field. Let the market reward projects with strong attributes.

Over time, only developers who build better homes will survive, which may result in higher quality of homes across the board.

Fourth, having a smaller commission pot available can help curb the growth in the number of property agents and possibly alleviate labour market tightness in some other parts of the economy.

As the absolute sum payable on a private home rises, ample room exists for commission rates to fall.

Moreover, lowering commission rates on home sales will help reduce the temptation for agents to take shortcuts on customer due diligence because of potentially juicy commissions.

Certainly, many buyers value the human touch when transacting homes, as property transactions are big-ticket items and buyers generally do not frequently transact homes.

Also, efforts to raise the knowledge, service standards and professional conduct of agents as well as leverage the use of technology should help buyers and sellers of homes.

Possibly, an agent can effectively partner an individual in his or her journey to build wealth through homeownership in Singapore.

In a letter to The Business Times, the Singapore Estate Agents Association said many real estate salespersons believe they provide a value-added service to their clients and find tremendous joy from helping to transform lives.

Still, capping commission rates on home sales offers various benefits. Ultimately, good property agencies and agents should do fine even with commission rates of 1.5 per cent or less.

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