Bonus Cuts Leave Less Cash for London Luxury-Home Purchases
(Updates with bonuses from sixth paragraph.)
Feb. 28 (Bloomberg) -- Fewer than half of the luxury homes bought in London last year were purchased with cash, down from about two-thirds in 2011, as banks reined in bonuses, property broker Cluttons LLP said.
Cash buyers fell to 49 percent from 74 percent a year earlier, the London-based company said in an e-mailed statement. Prices increased by about 4 percent last year.
“Banks are facing pressure from regulators, government, shareholders and the public to clean up their act, which has resulted in a softening in the big bonus culture,” Sue Foxley, head of research at Cluttons, said in the statement.
Bankers in the European Union have the toughest restrictions on remuneration among the Group of 20 nations. They may face even stricter limits under a proposal drafted by European Parliament lawmakers and national governments that would ban bonuses worth more than twice bankers’ fixed pay.
The bonus pool for bankers in the City of London financial district may have fallen by as much as a third to 4.4 billion pounds ($7 billion) in 2012 and may plummet to about 1.6 billion pounds this year, the Centre for Economics & Business Research Ltd. said in November. The U.K.’s financial industry will lose 43,000 jobs in six months through March as companies shrink and reduce costs, according to a forecast from the Confederation of British Industry.
A “severely limited supply” of homes means the change has had little effect on prices, according to Cluttons. The broker said prime central London prices will continue to increase by about 4 percent a year through 2017.
London’s most expensive homes recouped price declines that followed the financial crisis and prices are now 24 percent higher than their 2007 peak, according to Savills Plc. A weak pound and growing number of foreign buyers seeking to shelter their wealth from economic turmoil elsewhere made up for declining earnings in Britan’s financial industry.
“Banker’s bonuses in the City have not been a big factor in the market since the downturn,” Yolande Barnes, a director of residential research at Savills, said by phone. “I suspect the remuneration will remain the same; it’s just the way that it will be paid. Base salaries could become a lot more variable.”
--Editors: Ross Larsen, Jeffrey St.Onge