Sentiment Survey- Optimism dominates outlook

ECONOMIC OUTLOOK

You may not be able to breathe a sigh of relief just yet, but according to the Real Estate Business Sentiment Survey, more real estate principals are feeling in a better economic position than last quarter.

When comparing the current economic conditions with December of last year, one in three participants felt the economy was performing better. This renewed optimism is up by 16.7 per cent, while 32.7 per cent of agents felt conditions hadn’t changed.

However, the majority of Australia’s real estate professionals continue to lament the federal government’s handling of the economy.

According to the survey, 81.9 per cent of the 171 respondents said they weren’t impressed by the federal government’s management of the Australian economy.

This was only marginally better than the previous survey’s findings in October, when 85.5 per cent of respondents said they were unhappy with the Gillard government’s handling of the economy.

The Reserve Bank of Australia (RBA) was given the thumbs up for its handling of inflation, with 67.3 per cent of respondents happy with how the central bank was managing monetary policy. This result, which was up from the 51.1 per cent recorded in October, was likely due to the bank’s decision to cut the official cash rate twice in the last quarter.

While just over half (50.3 per cent) said the current RBA official cash rate – which sits at 4.25 per cent – would have a positive impact on demand for residential property in the coming quarter, around 44 per cent said it would have no impact.

In an annual forecast published in December, Laing+Simmons general manager Leanne Pilkington said declining interest rates would only go part of the way to boosting the local property market.

“The ramifications of the economic crisis in Europe will undoubtedly be felt in Australia, but exactly how and to what extent is difficult to predict,” Ms Pilkington said.

“As such it is difficult to forecast how the residential property market will perform over the next 12 months.

Ms Pilkington added that the Reserve Bank will continue to play a crucial role in terms of monetary policy although ANZ’s announcement that it will undertake its own monthly interest rate reviews may undermine this.

MARKET OUTLOOK
The new year continues to look promising on the market front as agents appear optimistic, with the majority believing the market will improve or remain steady.

With tight vacancy rates, high rental yields and static property prices, an increasing number of buyers are expected to make a move on market in the next few months.

According to the survey, 89 per cent of respondents believe the property market represents good value to buyers in the coming quarter.

In addition, a majority of respondents expect to see market activity increase, with both property listings and sales set to rise by 52.6 per cent and 45.6 per cent, respectively.

Speaking to Real Estate Business, Australian Property Monitors senior economist Dr Andrew Wilson said agents working the nation’s middle markets can expect some positive results over the first half of 2012, however little change is likely in the nation’s blue ribbon segments.

“I think buyer activity will increase in most markets across Australian over the next six months,” Dr Wilson said.

“After a disappointing 12 months, I think we are just starting to see some positive signs of growth in Brisbane and Perth and I expect this to carry through for the first half of the year. Sydney is Sydney, and will very much keep on keeping on. Adelaide, Melbourne and Hobart will drag their heels in the dirt a bit I believe and will not post the same growth as the other states, but I don’t necessarily expect any major declines either.”

Century21 Australia general manager Paul Mylott said buyer demand would also be fueled by the Reserve Bank of Australia’s (RBA) recent cuts in interest rates, which had increased home buyer confidence.

“I think it is fair to say that 2011 concluded with a bang as the Reserve Bank of Australia moved to reduce interest rates in both November and December, giving many buyers a bit more comfort surrounding the prospect of buying a property.

“Will rates continue to come down? Many pundits certainly seem to think this will be the case, particularly if the situation in Europe is not resolved definitively.

“Even if rates do not come down again, the two consecutive cuts in 2011 seem to have opened the door for many buyers, particularly those first timers in the property market.”

Mr Mylott said investors were also likely to take advantage of reduced interest rates in the next six months, and most buyer activity centered on properties in the $400,000 to $800,000 price range.

The survey also showed that just over 57 per cent of the respondents expect to see most activity be driven by the upsizers and downsizers market over the coming quarter, and Dr Wilson largely agrees.

“The nation’s middle market will see the most activity over the next six months. Most buyers will come from that middle change up market, looking to make the most of static house prices. But in saying that, I don’t expect to see any change in the prestigious million dollar-plus market, with activity set to remain soft,” Dr Wilson said.

BUSINESS OUTLOOK
The business outlook for principals is also looking good according to the 47.4 per cent of poll participants who expect to see their business grow over the next quarter. Another 42.10 per cent believe their business will remain steady in the same period.

The majority of principals will also be looking to hire staff or at least keep staff at the same level - which means no job losses.

According to the survey, 33.9 per cent of respondents are set to hire staff, a jump from 20.1 per cent recorded last quarter, and 57.3 per cent are looking to keep their staffing levels steady over the next few months.

Ewan Morton, managing director of Morton&Morton in Sydney, said he plans to hire at least four or five more staff over the next year.

“It is certainly a sign of confidence that we will be looking to hire. We are very confident our business will continue to grow,” he said.

“Despite the bad market in 2011 we recorded a good year and our plan for 2012 is to expand our business, starting with our sales team and property management.

“There will also be a focus on skills. We will be offering our agents a lot of training opportunities and we will be expanding skills on the frontline.”

Another of the survey’s key findings relates to the hot topic of discounted commissions.

According to the survey, more agents are starting to resist vendors’ calls for discount commissions.

“There is always going to be agents that discount their commission and there will always be vendors that are going to ask the question,” Rebecca Geldard, general manager of Ray White Noosa Hastings Street, Peregian Beach and Peregian Springs offices, located in Queensland, told Real Estate Business.

“But it is a policy of Ray White that we don’t reduce our prices. We will however sit down with the vendor at the end of the sale and more often than not the vendor is happy with the service they received and are willing to pay the full commission.”

According to the survey, 76 per cent of the 171 respondents were asked by a vendor to discount their commission, although only 53 per cent reported they followed through with the discount. This result was just slightly down from the previous quarter, when 58 per cent of agents reportedly discounted their commission.

Ms Geldard said she understood why agents discount their commission, although she believes an agent’s services warrant full payment.

“It is like buying a brand new car. If all the cars drove the same, looked the same and smelt the same you wouldn’t know which to purchase. It is only when a vendor has no other way of choosing an agent that they rely on the best value for money.”

Graeme Thomson, principal licensee for Internet Realty, defended the use of discounted commissions.

“It is the way we operate and it attracts a niche market of people,” he told Real Estate Business. “We get people that have been out of the market for 20 years or more who are then shocked with the commission fees, they can’t justify that type of money so they come to us.”

Mr Thomson has worked within the real estate industry for over 25 years and has been the principal licensee for Internet Realty for over 10 years.

The company operates an online-based service based on discounted selling fees.

“We aren’t popular with other agents, but that doesn’t worry us,” he said.

More than half of survey respondents said they would not spend more money on marketing. Michael Rowbottom, principal at First National Port

Augusta, in regional South Australia, said he would not attribute more money to promotion, opting to save money instead.

“2011 was certainly the hardest year we’ve seen, it was almost reminiscent of when we started out in the early 90s,” he said.

“At this point we are looking at reducing our spending anywhere we can.”

Mr Rowbottom, who has been in the industry for over 16 years, has found other ways to tighten the business’ belt as well. According to the owner, his Port Augusta office has faced problems with covering vendor paid advertising (VPA).

“Settlements aren’t happening quickly enough and even though our budget for advertising may be on the smaller scale, it is astounding how agents are facing the same problems nationwide,” he said.

In an attempt to recoup his cash flow Mr Rowbottom said he must change his practice to suit the market, now selecting to charge vendors every 90 days until the property is sold.

“Rather than wait for the end of the sale we have decided to collect the money as we go in order to keep our revenue consistent,” he said.

“Surprisingly, it has not been a problem with the majority of our clients.”

Mr Rowbottom is looking to 2012 with a “bit more excitement” as he hopes the activity from a nearby BHP Billiton mine will sales.
Other interesting data established from the survey found that agents are set to remain in the industry this quarter, despite reports of a challenging economic climate in some areas.

Survey results showed 83 per cent of the 171 respondents said that they would not leave the real estate industry during the next quarter.

The training manager of Stockdale & Leggo, James Wardrop, told Real Estate Business that these survey results were consistent with his dealings in the industry.

“I have found that most people are trying to make a good go of it no matter how the market is,” he said.

Mr Wardrop lists issues with a lack of income and inexperience as the main reasons agents might consider leaving the real estate industry.

“This is where larger companies can be very beneficial to those agents just starting out. We can offer greater opportunities and a support system to better prepare agents for the field.”

However Darren Gorrel, the NSW state manager of Gough Recruitment, a property and real estate recruitment agency, believes there are numerous smaller agencies which also offer great support to their staff.

“It is like all things, it really depends on the people inside the company,” he said.