SHANGHAI - Hong Kong-listed real estate company Midland Holdings Ltd, will close all eight of its Midland Realty brokerages in Shanghai by the end of this month.
Though Midland's departure from the pre-owned housing market resulted largely from its poor adaptation to the mainland market, the plummeting transaction volume also played a role, analysts said.
"Our headquarters in Hong Kong decided to close all the Midland Realty chain stores in Shanghai on May 31, leaving only the Shanghai head office on North Sichuan Road open for future development," Ding Wei, head of Midland Realty Shanghai division, told China Daily on Thursday.
Ding said that the headquarters didn't explain the reason for its decision and that up to 90 employees had been informed of the situation in late April.
Since entering the Chinese mainland in 1997, Midland had more than 50 branches across Shanghai in 2008. However, the rapid network expansion didn't translate into increased revenue because of both the poor localization strategy and tightening housing policies. Last year, the company further reduced its agencies from around 20 to the current eight. "Our development strategy in China is problematic," Ding said.
"Midland Realty's giving up on Shanghai is just a matter of time. Their Hong Kong headquarters has long ignored the degree of localization of its stores on the mainland," Song Huiyong, director of Shanghai Centaline Property's research and consultative department, another Hong Kong-based brokerage chain, told China Daily.
According to Song, the shrinking transaction volume in the pre-owned housing market is the straw that broke the camel's back. "If the market can't recover, maybe more realty agencies will follow suit," Song added.
Midland Realty's departure reflects the cutthroat competition in Shanghai's housing agency market, said an insider who spoke on condition of anonymity.
"In Shanghai, the property agent fee is 2 percent of the property's total price, much lower than 3.5 percent in Beijing, Shenzhen and Guangzhou. Meanwhile, the rising labor cost coupled with withering market demand make the competition here extremely fierce," he said.
Song said the 9,000-plus property agencies sold only 16,000 residential units in April, or 1.5 units for each agency. The break-even point is roughly 2.5 units an agency each month.
Analysts said this is just the beginning. If housing prices stay high, the central government will not revoke the tightening policy this year. "In the worst case, up to 30 percent of realty agencies will close in the next year, " the insider said.
"Midland's decision in Shanghai won't affect us. Just like Chuanghui Real Estate's massive brokerage shut-down in 2008, it had little impact on local counterparts," said Zhu Pingping, an analyst from Shanghai Sinyi Realty Agency and Consulting Co Ltd.
