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(Photo: Fiona Goodall/Getty Images)
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BusinessOctober 8, 2020

Housing is hot – so why aren’t realtors repaying the wage subsidy?

(Photo: Fiona Goodall/Getty Images)
(Photo: Fiona Goodall/Getty Images)

Real estate firms are hanging on to millions in wage subsidies despite a red-hot housing market recovery since June, reports Brent Melville of BusinessDesk.

Three of the country’s leading realtors — Harcourts, Bayleys, and Barfoot & Thompson — claimed a combined $8 million in wage support for more than 1,000 employees when pandemic-induced lockdowns were imposed during March and April. Many, including Harcourts and Bayleys, went on to claim the subsidy extension.

And while they may be the biggest firms, it will be the tip of the iceberg for a sector with almost 19,000 registered agents.

The Real Estate Authority lists 15,218 active real estate staff employed by 892 listed firms. In a June survey of its members, 88% of the more than 2,500 respondents confirmed they had applied for government support, translating to a potential $94 million in claims across the first round of wage subsidies alone.

Not so bad

Barfoot, Auckland’s biggest seller of housing, has been vocal about the minimal impact of the Covid lockdowns on its market. The $4.1 million claimed for its 603 staff was the sector’s biggest, while Bayleys received a combined $1.7 million for the 253 staff across its real estate, valuations and property services businesses, plus $552,936 in extensions.

Harcourts claimed $1.18 million across three separate applications for a combined 177 staff, adding $230,000 as an extension for 31 staff. Harcourts International also took a subsidy and extension totalling $318,674 for its 28 staff.

In reality, it’s a major exercise to work out what was claimed because many of the regional firms are standalone businesses in their own right and responsible for their own salary administration.

Ray White, for example, was listed by Work and Income as receiving a modest $91,000 for its 13 staff, while Mike Pero Real Estate claimed $154,651 for its 22 staff. Major commercial property firms also claimed, including Colliers with $130,700 for its 19 staff and CBRE at $851,952 for 122 employees. Carey Smith, chief executive of Ray White — the only top executive of a “big four” agency to respond to BusinessDesk — said wage relief was claimed specifically as a franchisor to the network members under the level four lockdown.

And that lockdown walloped the industry. Smith said his firm’s sales dropped more than 91% in April and another 48% over May. Real Estate Institute of New Zealand numbers reflected a combined 77% decline during lockdown months.

Chief executive Bindi Norwell would not be drawn on whether any firms – including the institute itself – were in a position to pay back the subsidy, along the lines of law firms and others which had found the lockdown wasn’t quite as bad as expected. The institute claimed wage subsidy for 24 staff of $168,000.

Still, there is a view that firms have a moral obligation to return financial support if it wasn’t needed, voiced recently by KPMG’s head of advisory Jack Carroll, who said the tax system relied on taxpayers doing right by the country.

A property sold sign in Auckland, 2017 (Photo: Fiona Goodall/Getty Images)

Market buoyancy

And since the March to May lockdowns, the housing market has more than caught up on the back of a friendly mortgage environment, with the removal of loan-to-value ratio restrictions and record-low interest rates.

By April, median national pricing was actually up 5% on the prior year and as July and August rolled around, the major banks had already changed tack on initial gloomy projections, from a 12% drop in national house values down to 10%.

ASB Bank, the most optimistic bank in March, picking a 6% decline in national house prices, is now looking at a 2.8% fall by next March, with some regions like Canterbury, showing no ill effects.

Westpac NZ chief economist Dominick Stephens has gone the other way, actually expecting a 3.5% increase in house prices between the lockdown period and end of year. That would take the 2020 increase to 6.3% and most economists expect the relentless increase in pricing to carry on from 2021.

Agents expect more deals

More than half of real estate agents polled by economist Tony Alexander in July thought the lockdowns had acted to re-motivate buyers to get deals over the line. More than a third, at that stage, also expected house prices to rise, rather than fall, driven by pressed vendors.

And indicative of a longer term rise in the market, residential consents bounced by a fifth in June, driven largely by urban, medium density developments such as townhouses and apartments.

Those numbers and economic forecasts make it difficult to understand why sales agents and property businesses also claimed the wage subsidy extension, which was available from June 10 to Sept. 1 on the expectation of a 40% decline in sales.

And even the latest Auckland lockdowns did little to stem the avalanche of business the firms are writing.

Barfoot’s Peter Thompson said house prices had largely ignored the more recent lockdowns and held onto price high gains registered in August, at the same time as recording the highest number of sales in any month since the peak of the property cycle in 2017.

Thompson would not be drawn on whether the firm will pay back any of its financial support. But according to his numbers, sales were up a jaw-dropping 42.5% last month from a year earlier, with a 44% increase in listings month-on-month to almost 2,000 – just in Auckland.

Thompson said while the listings jump had tapered off, the price increases showed longer term buyer confidence in the market.

Ray White’s Carey Smith also reported a ‘V’ shaped upsurge since April, with the firm having completed more sales for the past six months than the same period last year, on a 1.8% increase in listings – to 9,263 from 9,171 last year.

He said the firm will take a “responsible line” in regards to government recommendations, but that Ray White had not made further applications based on “confidence in the market.”

This article originally appeared on BusinessDesk. Their team publishes quality independent news, analysis and commentary on business, the economy and politics every day. Find out more.

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