Gurgaon real estate brokers cash in on slump,hike commission rates

With the economic downturn severely affecting their business in terms of volume,real estate brokers are now trying to work the slowdown in their favour by raising commission rates charged from developers to double or three times the earlier rates.

Written by Tanushree Roy Chowdhury | Gurgaon | Published: March 11, 2009 11:42 pm

With the economic downturn severely affecting their business in terms of volume,real estate brokers are now trying to work the slowdown in their favour by raising commission rates charged from developers to double or three times the earlier rates. Where brokers used to charge anywhere between 2 to 5 per cent earlier,they are now charging anywhere between 8 to10 per cent,say experts.

According to real estate analysts,the volume of sales,especially in residential properties,has dropped by 70 per cent since the beginning of the year.

“There is so much competition in the market due to the huge difference in demand and supply that no developer wants to leave a genuine buyer. In the present scenario,even the sale price is negotiable. Developers are offering end-user incentives like cash discounts and free club memberships,” says Rajat Mahajan,Vice-President (India),commercial leasing and business development,Century 21 India,a real estate brokerage firm. “A broker with a buyer who has ready cash to invest can negotiate a higher commission from developers.”

Pankaj Rejhen,Managing Director (North India),Jones Lang LaSalle Meghraj,said: “Not only are brokers bargaining for higher commission but developers too are willing to pay higher for projects that are not ‘selling’. Discounting is just one aspect. Brokers are much in demand among small-time developers or builders who have projects facing a slump in demand. Also,since the volume of sales has hit rock bottom,brokers are trying to make the most from every deal by raising their commission rates. At the end of the day,either the buyer or the developer ends up paying more.”

A spokesperson from TDI,a major real estate developer,said: “Such a trend exists only among new brokers who want to squeeze out the maximum in times of slowdown. We work only with brokers who have been with us for the last decade or so. They have been with us through highs and lows and do not use mercenary tactics to get higher commissions.”

“Brokers are undoubtedly running into losses. While people are making enquiries about properties,very few deals are actually materialising,” said Praveen Singh of Balaji Property and Developers,a real estate agency. “Buyers are anticipating prices will dip further while builders are not prepared to cut prices yet and are holding on,” he added.

Lack of a regulatory body in the real estate market is a major concern for experts. “There is no organisation that can standardise rates in the real estate market. So they depend on the whims and fancies of developers and builders. This explains why rates were sky-rocketing till last year and have hit rock bottom now,” said Mahajan.

Highlighting the same issue,Renjhen said: “Transparency in this sector has always been a big issue. Also,there are no prescribed guidelines like in other sectors.”

Mahajan,however,added: “The demand is slowly picking up among both end users and investors due to more realistic pricing and lowering of interest rates. If one can sustain for three years or more in the market,it will yield better than expected returns as by then the gap between demand and supply will go down.”

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