Dubai property market needs a reality check on brokerage commissions

For the middle market segment, since much of the information is uploaded to online sales platforms – which are rapidly proliferating to other brokers who end up engaging in the practice of “cold calling” – the question often becomes who actually owns the data. which is downloaded. Is it the seller, the platform and/or the real estate agent?

In many cases there is no litigation, as sellers generally succumb to market practice, but it is clear that this will be actively debated in the months and years to come and will be part of determining the trajectory commissions. There is a distinct set of incentives that require real estate agents to steer buyers towards the top of the commission range, which usually appears in the primary market.

With the exception of the ultra high end, transaction speed has always leaned towards the primary market, and commissions have a role to play in this behavior. Secondary market transactions are therefore mostly limited to a handful of agents, who prepare for when the market becomes active as it has in the post-Covid period. Even here, market momentum is determined by launches in the primary market, which then attract investors to the secondary market based on the price differential.

Jumeiarh Village Circle, for example, saw double-digit price and rental increases, while Sports City actually saw the opposite trend, although the latter started at a lower rate than the former. Commissions, which are often shared by brokers, further add to the confusion in the market, where part of the compensation is built into the price, a system that quickly breaks down upon transfer, especially when the trade is back-to-back. to a mortgage. .

It is possible that the reliance on the commission path will be much less complicated and much weaker in the medium term, given the proliferation of information available online. Agents will always have more information than potential buyers/sellers in any market, but this “information arbitrage” is rapidly diminishing.

Where it cannot be reduced is in the area of ​​maintenance and upkeep required in the case of aftermarket activity, especially as homes age. Curiously, this would imply that commissions should be higher for these types of transactions; yet in Dubai the opposite has happened, with the natural consequence that secondary market sales are systematically undervalued.

This is not true in Dubai, but everywhere in the world, and study after study has confirmed this hypothesis. A radical idea might be a platform that accentuates what the Dubai Land Department has already put into the public domain, which would include all user-generated information. This would then serve as a platform to determine commission rates based on the transaction.

Secondary market data would be more critical as it would contain the most relevant information for potential buyers (beyond just price data). This includes data collected from OA and FM companies that are currently accessible. These platforms can then serve as the basis for piloting a new commission standard.

This would have its own share of regulatory challenges to overcome, but the issue of first principles remains as obvious today as it has ever been – commissions need to be reduced.