Real-estate transparency needs looking into

The Competition Commission is taking one of the city's largest groups of property agencies to the Competition Tribunal following an investigation that could have taken longer to complete if not for the assistance of one of the alleged accomplices.

The prosecution focuses on Midland Holdings and its two subsidiaries, but spares Centaline Group and its affiliates. The anti-trust body said Centaline was spared because it had offered assistance essential to the probe.

While the case will continue to develop in the tribunal, it also raises a question about commission payouts of the primary property sector: transparency.

According to the Competition Commission, senior Centaline and Midland executives met a number of times from October to December last year in relation to sales of a new project and agreed to charge - or keep, to be exact - at least 2 percent in commission.

In the primary property sector, it is increasingly common for developers to offer estate agents a higher-than-usual commission to accelerate sales, with some reportedly hitting as high as double digits in more extreme cases.

On one hand, this can incentivize agents to work harder to sell their units.

On the other hand, it also offers greater flexibility for the agents to pass part of the commission due from developers on to buyers in the form of rebates.

This means that, while developers need not formally lower the selling prices, buyers can actually get the units for less than what is listed on the official price list.

The government may be pleased to see this because a reduced listed price would lead to lower stamp duty charges.

Such a practice has been long standing and is common whenever the market becomes weak as it is now.

It was reported that, as the market weakened last year, competition between agents became so keen that the rebates to customers had gone up to directly affect the incomes of both the companies and their employees.

Developers were most reluctant to lower the selling prices formally as this would devalue the entire inventory and affect stock prices that, in turn, can also be tied to the borrowing terms of commercial loans.

A major issue with the long-standing practice is a lack of transparency.

Individual buyers do not benefit from the rebates equally although they are buying from the same real estate developers and using the service of the same agencies.

Is that fair to the buyers? Buying a home is one of the biggest decisions one may make in a lifetime - in the local context, probably even bigger than getting married.

The investigation has brought to the surface an understood practice, but it will not dealt with at the root by increasing transparency to make it equal to those buying from the same developers via the same intermediaries.

The case may also be viewed as a mockery of the Estate Agents Authority which is supposed to oversee the conduct of estate agents.

In addition to the tribunal trial, will the system be reviewed too? This will be the other aspect of the incident to monitor.