"Pay for Property Viewings"? I'd Rather Buy on Danggeun [The Editors' Verdict]

Junho Hwang Head of Construction and Real Estate Department

The weekend scene in the new town was far from lively. There were no families out for a meal or couples enjoying a cup of coffee. The only thing that stood out were real estate agencies in empty commercial buildings, prominently displaying "For Lease" signs. The commercial district of Baegot New Town in Siheung, Gyeonggi Province, felt not just quiet but almost desolate. It was a vivid illustration of the current reality, where one out of every ten commercial properties is reportedly vacant.

The Amazon effect has brought about a 'credit crunch' in the commercial property market. The Amazon effect refers to the phenomenon where the emergence of a massive platform like Amazon intensifies competition and drives down prices. While competition may lower prices, offline stores that lose out in this competition are forced to close down. As it becomes increasingly difficult to make a profit, even those who once considered starting a business are disappearing.

Even the real estate agencies that once anchored these commercial areas now appear to be in jeopardy. The number of newly opened agencies continues to decline. In the months of January to March this year, which precede the busy spring moving season, the number of new real estate agents opening each month fell below 1,000. This is the first time since statistics began in 2015 that the monthly number of new agencies has remained below 1,000 throughout the entire first quarter. The total number of real estate agents has been decreasing continuously since February 2023.

Meanwhile, the share of direct transactions through online brokerage platforms is steadily increasing. For example, the number of direct deals completed on 'Danggeun Real Estate,' a leading direct transaction platform, soared from 268 in 2021 to 23,178 in 2023. Last year, 59,451 transactions were made. Over three years, the number of deals increased more than 221 times.

As housing prices rise, the burden of brokerage fees has driven a surge in people turning to online platforms. In the first quarter, the average sale price of an 84-square-meter apartment, commonly referred to as the 'national standard size,' in Seoul was estimated at 1.46 billion won. In such cases, the brokerage fee (for properties priced between 1.2 billion and 1.5 billion won, at the maximum rate of 0.6%) amounts to about 8.76 million won. These days, people are literally scraping together every last bit of their resources (maxing out their loans) to buy a home. When faced with the prospect of paying millions of won just for a single property showing, many start to consider direct transactions.

Some worry about falling victim to scams while trying to save on fees. However, the current level of brokerage fees is hardly negligible. To avoid getting scammed, people either hire traveling brokers or use their own expertise to handle transactions?this is how the younger generation tends to conduct real estate deals these days. Looking further ahead, one can expect to benefit from advances in artificial intelligence (AI).

In every respect, the real estate brokerage industry is walking on thin ice. Yet, recently, the Korea Association of Realtors announced plans to introduce a so-called 'site visit fee' for property viewings. Upon taking office on April 23, Kim Jongho, President of the Korea Association of Realtors, emphasized, "A real estate agent is not just a guide," and stressed the need for a system that fairly compensates the effort and service involved in property viewings.

While the public dreams of a world where transactions can be made without agents, agents are now demanding payment even for property viewings. Unsurprisingly, there is already strong opposition, with critics calling for lower brokerage fees instead. If site visit fees are introduced, competing with direct transactions will become even more difficult. This will only further stimulate cost- and benefit-conscious consumers and accelerate the Amazon effect. Now is the time for agents to focus on their core duties. Only by enhancing their expertise and building trust can they hope to survive.