take developer commissions with a grain of salt

take developer commissions with a grain of salt

June 2016
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Take developer commissions with a grain of salt

In recent weeks, a number of articles have popped up under different mastheads purporting to highlight the enormous developer contributions being offered to agents across Melbourne.

Unsurprisingly, the commentary thus far has been attempting to link the significant commissions on offer to agents to that of one of the media’s long held favourite topics - the so called imminent housing bubble allegedly set to decimate prices across the Nation and send thousands into mortgage default.

As with any media speculation however, much of the commentariats’ opinions are based purely on fiction rather than fact.

Without doubt, in both of our most populous cities, Melbourne and Sydney, there exist numerous examples of new development product that are just waiting to sit unsold or be re-sold at substantial discounts upon completion.

However, in any analysis, the dependent variable is more closely aligned with the agent’s commission, meaning that higher commissions are representative of riskier, less demand driven product, whilst a lower commission is indicative of a product that has a higher level of demand as a direct consequence of adequately fulfilling the functional and economic utilities and desires of a given population.

Melbourne’s CBD apartment market is one such example, wherein poor planning has led to a suite of fundamentally flawed projects receiving planning approval despite their poor quality, budget design and amateurish consideration of any community benefit whatsoever.

Subsequently, the rapid approval of these projects had led to developers misreading market sentiment and continuing to offer predominately one bedroom units in high-rise structures that boast little to no appeal from either the investor demographic seeking only an even reasonable return, or the owner-occupier market.

With these types of developments typically being concentrated in capital city markets whereby the level of supply is already excessive, it is no wonder that their lack of appeal to buyers is resulting in commissions of up to ten percent for agents willing to take on the near impossible task of closing the deal.

Given the poor standard of product, and the relative competitiveness of stock in the surrounding market, the issue of developer contributions to agents is not at all representative of broader economic conditions.

Nonetheless, the media’s relentless pursuit of discussion around an imminent housing market crash is vastly overblown.

Instead, both low and medium density residential developments across Melbourne and Sydney that have a more even distribution of one, two and three bedroom apartments with good access to amenity continue to deliver strong sales results.

Image courtesy: The Age