With the financial crisis barely forgotten, the financial & banking sector suffers with regards to new property sales
Despite the promising signs of a longer term recovery, we are still hearing echoes in news reports of ‘the worst global financial crisis in living memory’. People don’t forget easily, and the wheels of policy change keep turning even as those brutal days on the share markets become more distant.
Banks and financial institutions are still in the process of implementing cutbacks in executive bonuses, in accordance with public sentiment. However, it seems that this will have a flow-on effect in the higher end of the real estate market.
Despite the fears that the usual players buying property in the luxury higher-priced sector will be quiet, there are some optimistic notes in all of the predictions, but for higher-end and more standard home buyers.
Cutbacks in executive bonuses
Macquarie Bank is one notable example of the cutbacks that are coming in executive bonuses. They are moving to a half cash, half share model for their senior executives in 2010’s round of bonuses in May.
The pro-active move is designed to relieve anticipated regulatory pressure on bank bonuses. Macquarie’s bonus cuts are said to be the largest in Australia, but they are certainly not the only ones:
- Commonwealth bank execs had their pay cut by 5%, and the CEO voluntarily cut his pay by 10% last year
- Goldman Sachs executives (in the US) had their entire cash bonus swapped for stock which cannot be sold for at least five years
- Hewlett Packard’s top executive had his salary package cut by 30% from its value last year
Real estate agents and buyer’s agents expect a sharp decrease in those buying property from the usual tight-knit community of bank executives. This is compared to previous years, when a flurry of execs buying property in June immediately followed the bonus payments in May. However, there is an upside for the real estate market, and some good reasons for people to think about buying property in the next few months.
Optimism in the luxury market
It seems that most people buying property are aware that the financial crisis is ending. Even if executive bonus cutbacks draw out the recovery a little, there will still be a sizeable population looking to take advantage of the tail end of the crisis and its adjoining low prices. It is these very people that will push the prices for buying property up in future months. Buyer’s agents are certainly advising their clients to act quickly … before everybody else does.
Interest rates bode well for standard home buyers
Buyer’s agents are seeing healthy interest in homes at the ‘standard’ end of the price scale also, with the recent Reserve Bank decision to leave interest rates on hold this month. Industry representatives had been warning the central bank that increasing the cash rate again would put a big dent in buyer interest. Of course, the RBA’s decision was not motivated in large part by the interests of real estate agents (naturally!), but more from a wish to let the previous four rate rises ‘settle’, and exhibit their effects on the economy at large.
However, it seems likely that when the RBA meets next month that interest rates will go up; most analysts were expecting another rise of 25 basis points in this month’s meeting, and it seems that won’t be delayed for too long. Buyer’s agents are advising their clients to lock a loan in now, before any further rises in both property prices and interest rates.
The take-home message for both executives and ordinary home buyers is that now is the perfect time to buy. The economic recovery is looking certain, but is still new enough not to have had its full impact on prices yet. Those who act quickly will be able to grab a bargain, in quite a stable economic environment.
Discussing the effects of the financial crisis and some banks/financial institutions cutting back the bonuses typically awarded to their senior management executives
- This effect means less cash money will go into the market as these individuals have less disposable income
- Many of the same individuals are also looking to sell off investment property and/or to move on to buy property elsewhere (silent listings) as positions and job locations may change
- On the other hand, the unchanged interest rate may bode well for new or first time property buyers this year
- Warnings though that future increases could put pressure on the property market
In light of these we could assume that the higher valued homes would show a decline in sales to new property buyers while the low to mid price range may see an increase, especially for first time home buyers.
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