Circular aims to stamp out commission fixing

June Chen

Hong Kong's Estate Agents Authority has issued a new circular for property agents to facilitate good and effective practices related to commission competition, including a reminder against collectively setting a commission rate.

EAA understands that estate agency companies can make their own business decisions or negotiate individually with their customers on the amount or rate of commission that they would charge in a free market economy.

The authority will neither intervene nor set any criteria on the level of commission, and the circular only aims to promote effective competition practices.

The EAA encourages estate agency companies to formulate in writing their own commission policy based on the considerations that they have taken into account.

In first-hand residential property transactions, the agent shall inform the homebuyer of the absolute amount of the rebate or a formula showing how the amount of the rebate would be calculated, which may only be expressed as an explicit percentage of the purchase price.

Moreover, incentives offered by estate agency companies must not restrict or prevent purchasers from giving a holistic consideration when making a purchase decision.

The incentives, including cash rebates offered by an estate agency company with a substantial degree of market power, must not be abusive.

For example, adopting a predatory strategy to drive out competitors would ultimately shrink the options available to consumers.

Earlier, senior staff of Midland's two subsidiaries, Midland Realty and Hong Kong Property Agency, agreed with Centaline Group's Property Agency and Ricacorp Properties for agents to charge at least two percent in commission for first-hand residential property transactions, breaching the Competition Ordinance.

The Competition Commission asked the tribunal to order the entities to implement a competition compliance program, pay the government a fine and strip the five directors of their senior management positions.

The circular will come into effect in November, the EEA said.

Ruby Hon Yuen-ping, the chief executive of EAA, said that the new circular covers the views of different parties, and there are still about three months to go before it comes into effect. That gives the industry enough time to prepare for compliance.