Property agents have a long history in China. Back in the Zhou Dynasty almost 3,000 years ago brokers called zhi ren were responsible for executing the deeds in home sales.
By the time of the Song Dynasty (960–1279), the government had mandated that all housing transactions be completed through an intermediary.
In today’s China property brokerages are one of the country’s more under-regulated industries, however. That has led to countless complaints about fake listings, artificially-inflated prices and the hoarding of unsold units to limit supply.
Last year 221 real estate agencies in the capital city of Beijing were fined for various transgressions.
To that end, the city of Yongcheng in Henan province decided to take matters rather boldly into its own hands – it has become the first place in China to eliminate property agents.
The city, with a population of 1.6 million, announced in early May that it has created an online service that connects homesellers looking to find buyers. The platform, called Yongcheng Real Estate Information Centre, is owned and operated by the local government. Interested parties can contact each other directly to arrange viewings and negotiate prices, bypassing agents altogether.
Netizens were intrigued, although most were soon saying that the government has other motives. Even though Yongcheng officials are offering “a free platform for the general public to buy, sell and rent”, it still takes a commission for each transaction. According to Hexin, a news portal, the service charges buyers and sellers 0.3% of the transaction each.
Typically, property agents in China make 1% of the sale price.
The average price of second-hand homes in Yongcheng is around Rmb7,500 per square metre, which means that the government would make Rmb4,500 on a house of 100 square metres. Factor in loan arranger fees and other service charges, and revenues as a go-between could easily surpass Rmb100 million ($14 million) a year, netizens speculated.
“In the past, the money goes to the intermediaries. Now it all goes into the government’s pocket. And does it have any competition? No,” Hexin added.
In fact the news portal is pretty unimpressed with Yongcheng’s new venture. “The role of the government is to rectify and standardise the market. It should make sure that bad agents don’t go unpunished. However, completely cutting them off and replacing them altogether is not wise, either.”
According to Zhang Yong, a real estate agent in the city, the government now fines agents if they are caught doing business. “A few agents that opened offices privately were fined tens of thousands of yuan after they were found out. No one dares to open their doors again,” he told Caijing, adding that a lot of brokers have switched to property management services. Others have changed tack completely, becoming travel agencies.
The government has taken a more active role because of a surge in home prices.
“Home prices in Yongcheng are too high, which is caused by agents hoarding supply and falsely raising prices. Houses should be built for living in not for speculation. During the pandemic, a home in Yongcheng cost Rmb1,000 per square metre more than in Shangqiu [a neighbouring city and also a high-speed rail hub]. This could impact social stability and the overall development of Yongcheng,” a government official was quoted as telling the local press.
Yongcheng’s economic development has been rapid. Large mining companies such as Yongmei and Shenhuo have set up offices there, creating employment opportunities and drawing in migrants. Land allocated for real estate development hasn’t kept pace, pushing up home prices.
“This is an arrogant attempt from the government and runs contrary to free market principles. It won’t have any effect on reining in home prices. At core, home prices are a relationship between supply and demand. And without agents, the transparency of information will only decrease,” predicted Yang Xianling, an adviser at Beike Research Institute.
© ChinTell Ltd. All rights reserved.
Exclusively sponsored by HSBC.
The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.