'No rule book': McGrath slashes pay as auction clearance rates slide
Directors at listed real estate group McGrath have taken a pay cut and clamped down on hiring new staff amid expectations of a softening in house prices as the coronavirus pandemic hits consumer spending power.
McGrath chief executive Geoff Lucas, who has taken a 40 per cent cut in pay, said there is evidence vendors are coming to the market earlier than expected amid a fall in auction clearance rates.
“While we have no hard evidence of price declines as yet, with lower auction clearance rates the market is starting to look a little softer,” Mr Lucas said.
“There have been some signs emerging of more selective buying at the moment and vendors seem to be coming to the market earlier as prices start to soften.”
Over the weekend, the Sydney clearance rate was 39 per cent and in Melbourne 30 per cent, according to data from Domain. This compares to clearance rates of about 55 per cent at this time last year.
UBS economists George Tharenou and Carlos Cacho are now tipping house price falls given the coronavirus-induced sharp spike in unemployment and a looming recession.
“The extent and duration of price falls is very uncertain but lenders offering deferred mortgage repayments (for six months) is critical in helping to minimise ‘forced selling’,” the economists said.
“Furthermore, if price falls do become very significant and potentially a macro-stability risk, we would expect further material government support.”
In a market update, Mr Lucas said McGrath would temporarily close some company-owned offices to reduce operating expenses. This would not include the McGrath franchise businesses.
Mr Lucas and the board of directors will take a pay cut for May, June and July 2020. There will also be a 30 per cent reduction in all salaries of over $70,000 per year for staff employed by McGrath Limited for May, June and July 2020.
Mr Lucas said McGrath’s balance sheet was “strong” with $10 million in cash and no debt.
McGrath securities were unchanged at 18??.
