Source: Bloomberg
Dec. 10 (Bloomberg) -- London bankers and other financial- services employees will spend about 1 billion pounds ($1.6 billion) of their 2010 bonus money on homes in the U.K. capital, 17 percent less than last year, Savills Plc said.
The purchases may not stop prices of London luxury homes from falling next year, though the drop probably won't exceed 1 percent, Savills said in a statement. Values rose about 2 percent this year, helped in part by approximately 1.2 billion pounds of 2009 bonus money, the broker estimates.
This year's payments won't trigger a "measurable price rise as seen in the past," Yolande Barnes, head of residential research at the London-based property adviser, said in the statement. "Rather, we anticipate that bonus money will be fed into the market over a longer time period."
Bonus-earners typically account for half of the buyers of London homes costing more than 1 million pounds, according to Savills. Record payouts in 2006 and 2007 -- which the Centre for Economics & Business Research says totaled 11.5 billion pounds each year -- sent property values surging to all-time highs in neighborhoods such as Chelsea, Belgravia and Kensington.
The CEBR expects bonuses for the 300,000 financial-services workers in London to total 7 billion pounds before taxes in 2010, about 5 percent less than in 2009, according to Savills's report.
Companies have slashed bonuses to weather the global financial crisis. They're also now deferring payments or offering shares in response to pressure from politicians and regulators. Since April, the tax rate for incomes exceeding 150,000 pounds increased to 50 percent from 40 percent.
Deferred Payments
"General caution and the method and timing of the payouts mean that only a portion will be invested in property," Barnes said. That means home sales in the second quarter, which is usually when bonuses for the previous year get paid, are unlikely to jump, she said.
Though the amount of 2010 bonus money expected to be spent on property has shrunk, deferred bonus payments from previous years or money from increased salaries may also go into real estate, Barnes said.
Lindsay Cuthill, head of Savills's southwest London sales offices, said the broker has started receiving the first offers from purchasers anticipating bonuses after viewings in November increased fourfold from October.
"We're seeing buyers circling properties" in the 2.5 million-pound price band, he said.
Battersea, Chiswick
Changes in bonus pools have the most effect on real estate in southwest London. Owner-occupiers employed in banking and financial services tend to favor neighborhoods such as Battersea, Wimbledon and Chiswick because of the relatively high proportion of family homes and good schools.
Prices in this part of London rose 12 percent in the third quarter from a year earlier, the biggest gain in Britain, Savills estimates. Prime property here costs an average of about 1.3 million pounds, less than the 2 million pounds or more needed to buy a similar home in central London.
Bonuses have been less of a driving force for prime residential property values in central London. Overseas buyers have been lured to those neighborhoods by the pound's weakness and price declines during the height of the financial crisis.
Savills estimates that 60 percent of prime central London property purchases are made by people outside the U.K.
Competition for a limited number of luxury homes for sale has limited the price decline since the peak to 5 percent, said Liam Bailey, head of residential research at competitor Knight Frank LLP. The number sold in the second and third quarters was 30 percent less than the same periods in 2007.
The purchases may not stop prices of London luxury homes from falling next year, though the drop probably won't exceed 1 percent, Savills said in a statement. Values rose about 2 percent this year, helped in part by approximately 1.2 billion pounds of 2009 bonus money, the broker estimates.
This year's payments won't trigger a "measurable price rise as seen in the past," Yolande Barnes, head of residential research at the London-based property adviser, said in the statement. "Rather, we anticipate that bonus money will be fed into the market over a longer time period."
Bonus-earners typically account for half of the buyers of London homes costing more than 1 million pounds, according to Savills. Record payouts in 2006 and 2007 -- which the Centre for Economics & Business Research says totaled 11.5 billion pounds each year -- sent property values surging to all-time highs in neighborhoods such as Chelsea, Belgravia and Kensington.
The CEBR expects bonuses for the 300,000 financial-services workers in London to total 7 billion pounds before taxes in 2010, about 5 percent less than in 2009, according to Savills's report.
Companies have slashed bonuses to weather the global financial crisis. They're also now deferring payments or offering shares in response to pressure from politicians and regulators. Since April, the tax rate for incomes exceeding 150,000 pounds increased to 50 percent from 40 percent.
Deferred Payments
"General caution and the method and timing of the payouts mean that only a portion will be invested in property," Barnes said. That means home sales in the second quarter, which is usually when bonuses for the previous year get paid, are unlikely to jump, she said.
Though the amount of 2010 bonus money expected to be spent on property has shrunk, deferred bonus payments from previous years or money from increased salaries may also go into real estate, Barnes said.
Lindsay Cuthill, head of Savills's southwest London sales offices, said the broker has started receiving the first offers from purchasers anticipating bonuses after viewings in November increased fourfold from October.
"We're seeing buyers circling properties" in the 2.5 million-pound price band, he said.
Battersea, Chiswick
Changes in bonus pools have the most effect on real estate in southwest London. Owner-occupiers employed in banking and financial services tend to favor neighborhoods such as Battersea, Wimbledon and Chiswick because of the relatively high proportion of family homes and good schools.
Prices in this part of London rose 12 percent in the third quarter from a year earlier, the biggest gain in Britain, Savills estimates. Prime property here costs an average of about 1.3 million pounds, less than the 2 million pounds or more needed to buy a similar home in central London.
Bonuses have been less of a driving force for prime residential property values in central London. Overseas buyers have been lured to those neighborhoods by the pound's weakness and price declines during the height of the financial crisis.
Savills estimates that 60 percent of prime central London property purchases are made by people outside the U.K.
Competition for a limited number of luxury homes for sale has limited the price decline since the peak to 5 percent, said Liam Bailey, head of residential research at competitor Knight Frank LLP. The number sold in the second and third quarters was 30 percent less than the same periods in 2007.
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