JULY & AUGUST 2012 |www.opp.org.uk


Editor’s letter • John Howell ✆ +44 (0)208 734 3960 john.howell@opp.org.uk | 7


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EDITORIAL Editorial Director John Howell ✆ +44 (0)208 734 3960 john.howell@opp.org.uk


International property reporter Francine Carrel ✆ +44 (0)208 734 3973 francine.carrel@richmondgreengroup.com


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MARKETING & OPERATIONS Megan Williams ✆ +44 (0)208 734 3969 megan.williams@richmondgreengroup.com


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Up and down they go... Down go prices. Down go sales. Down goes confi dence. Up go commissions! Where do we go from here?


lead to lower prices. The bigger question is whether prices


are likely to fall further in the future. If people think that they are, they are not likely to buy. There still seems to be a lot of inventory to be released into the market by banks and governments around the world. This suggests that further falls are likely in the places where there is a lot of property for sale. Bad news for Spain and Portugal.


The third ‘down’ is the fall in


Group editor John Howell


T


his month I am seeing a number of ‘downs’ and one rather surprising ‘up’.


Down go sales volumes. There is what looks like a global fall in sales volumes, both with those published (i.e. a month or two old) and those being experienced by my contacts today. There are one or two exceptions but the tide seems to be fl owing that way.


The second (and related) ‘down’ is property prices. I have received even more reports and surveys than usual and, with one or two exceptions, such as parts of the US (where prices had already crashed to such a huge extent that, arguably, the only way is up), the consistent message is that prices of residential property have fallen again and look like falling further still. These two ‘downs’ are, perhaps, not surprising. For most people, investing in real estate is a major step and most potential buyers need to have some confi dence in the future before committing themselves. Will I have a job? Will my earnings fall? Will the currency in the place I am buying collapse? Without this confi dence that your personal future is not going to turn into a disaster you are likely to sit and wait. With the current turmoil around the world this is exactly what most people are doing and, of course, fewer buyers tends to


confi dence within the industry that the euro crisis and its spin-off effects around the world are going to be cured (or even patched up) any time soon. The consensus of the bankers and fi nancial experts that I have been talking to is even more depressing than my own thoughts. For a long time, I have been saying that I think we will be in diffi cult water for the next fi ve years or more. Many of those who should know are talking about ten years. How will the industry encourage


demand against this background? We will be running a special feature on this very important question in next month’s issue of OPP.


The slightly unexpected ‘up’ seems


to be commission levels. We are now seeing some developers offering 25% commission. Of course, this is not every developer. In truth, it is a small minority. In most cases, commissions remain in the 5% to 15% range and the level is largely dependent upon the country where the property is located and the price of the property. What do commissions of 25% tell us? Are they an act of desperation by the developers or do they simply refl ect the fact that making sales is getting more expensive and the prices achieved are falling, so a larger part of the price must be taken up by sales costs? One thing is clear. Most buyers would


be horrifi ed if they thought that 25% of the price was going to pay commission on the sale. It is also fairly clear that, if you are buying property as an investment and paying 25% commission, the property is likely to be priced far higher than local


levels and it could be a very long time before your investment grows in value. What levels of commission are


appropriate in this industry? What levels can be justifi ed to buyers – assuming, of course, that the buyers were aware of the commissions being paid? Should buyers be told the commission paid? This last series of questions is going


to assume much greater importance in the coming months. In some countries there are moves to control the levels of commission paid and to force disclosure to buyers. In the UK, where increasing numbers of sales are being made via independent fi nancial advisors (IFAs) rather than estate agents, the Retail Distribution Review (RDR) will mean that IFAs will not be able to receive payment by way of hidden commissions. They will have to agree the way in which they are to be paid, in advance, with their client and they will have to disclose the amount that they are going to receive for the advice that they are giving.


I understand that similar rules are


under consideration in Scandinavia and in Germany. Even if you are not an IFA, this could well have an impact on the way you do business. If the IFA is charging a fee of (say) $2,000 for his advice, with the rest of what would otherwise have been commission going to the buyer, could this not encourage buyers to buy via IFAs rather than traditional agents who might be taking a commission of (say) $20,000? Alternatively, might this change in the rules simply drive most IFAs out of the market? In next month’s OPP, we will also be


running a feature on the whole question of the future of IFAs in the international property business and the effect of their presence on traditional estate agents.


If you would like to contribute to either of next month’s discussions, please let me know your views: john.howell@opp.org.uk.


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