Property agents push homes that come with higher commissions
Sellers in the secondary market are unable to compete with developer incentives
Developers in Dubai are offering higher commissions to real estate agents to clear inventory in the primary market. The range is between 2 to 8 per cent, depending on the developer. However, in the secondary market, the broker commission is typically only 2 per cent, where the buyers and sellers split broker fees, according to a report by GCP-Reidin.
As a result, brokers are gravitating towards pushing primary stock, as they can make five times as more compared to the secondary market.
"In recent months, there has been a definitive trend towards higher commissions by major developers in the primary market, which has altered the microstructure of the market, whereby the middlemen [brokers] have gravitated towards the areas and communities that offer the highest incentives. The majority of developers have changed commission structures in the last 18 months from the standard 2 per cent to 5 to 6 per cent on both ready and off-plan markets as a means to clear their inventory," said Sameer Lakhani, managing director of Global Capital Partners.
Wherever broker commissions have been revised higher in 2018, there has been a resultant increase in transaction volumes. A year-on-year analysis reveals that locations where the transactional increase is the highest is in the primary market.
Although, there are a variety of factors that account for this differential such as payment plan, price points, etc., one of the variables is the commission structure for brokers.
"Some primary market units from a developer come with higher commissions for brokers. Most often, these higher commissions appear in special promotional periods rather than just a flat rule over a long period of time," explained Lewis Allsopp, CEO of Allsopp & Allsopp.
Ready communities such as Arabian Ranches 2, Al Furjan and Jumeirah Island townhouses all revised their commissions higher this year and consequently saw higher transactions.
However, this has come at the cost of secondary market activity where the brokerage incentives are smaller in comparison. This market is dominated by amateur buyers who cannot compete with the cash-rich developers. "This trend will accelerate, with the eventual consequences that brokerage commissions in the secondary market will have to rise in tandem," Lakhani added.
Sellers have to understand that broker incentives have to rise in markets that experience liquidity shortages. The larger developers have done so, incentivising the middlemen with generous incentives in order to clear inventory; this has come at the cost of reducing velocity in secondary markets.
"A professional agent will look beyond a one-off commission and look to build long-lasting relationships with clients. An agent will work with a buyer to find the best option in the market for them which meets their specific needs. An agent is there to offer advice and expertise, not to push a buyer in order to benefit themselves. Any broker looking to maximise their own part of the deal at the expense of a buyer will not have a very long career," warned Allsopp.
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