‘Plenty of potential’: estate agent sees downturn’s benefits
Estate agents by their very nature have to be optimistic and Sherry FitzGerald chief executive Mark FitzGerald is adept at finding a silver lining in the current economic cloud.
"It’s actually going to lead to a better decade (economically)," he said. "It has actually given us what the commentators wanted us to deliver. The critique of Ireland was that it had become uncompetitive because labour prices were higher and property prices were higher.
“We now have a correction. We’re gaining competitiveness as we speak. This week the Irish economy is probably gaining competitiveness. What that does is make it look like a very bright decade ahead. The question is when does that bright decade begin? That’s a question nobody can answer. It really is down to when the banking system starts operating again.”
He believes that the pace of Ireland’s recovery post-2010 will surprise people.
“The sentiment about Ireland has been disproportionately negative, and maybe people were also overenthusiastic about the Celtic Tiger, but certainly some of the pessimism is completely overdone.”
That said, FitzGerald acknowledges that the orgy of easy credit which climaxed with 110% mortgages fuelling a rocketing property market is over. Permanently.
“I don’t think we’ll go back to 100% mortgages. I do think we’ll go back to normality, when you have 85%-90% mortgages. That’s what I call a normal market. It’s understandable what the banks are trying to do,” he said.
You can’t accuse FitzGerald of not putting his money where his mouth is. He bought more than 100 acres of farmland in Pontoon, Co Mayo in recent months.
"The one thing certain about the present is that the present will change, so what we try to do is manage the changed circumstances and try to get on the right footing for the future and improve your business. Am I confident? Yes. I bought property in Co Mayo this year and I wouldn’t have done that if I thought it was an injudicious thing to do. It’s farmland but I didn’t foresee the rise in food prices. I’m not a rabbit in the headlights transfixed by the most recent headline."
FitzGerald recently raised his head above the parapet to say that the bottom of the market was in sight. That raised eyebrows, even within the property sector, where most people acknowledge that it will be two years at least before the market recovers.
“I think it’s very important that we don’t, in the words of the ESRI, become transfixed by short-term difficulties,” he said. “We’ve gone through two economic phases since the summer of 2006. The first phase was the buyers’ strike so we had our own correction, so we weren’t actually in bad shape when the credit crisis arrived. People are prone to excessive comment and you’ve got to put things in their historical perspective.”
FitzGerald does admit that many property price indices don’t reflect reality.
“Some of the indices haven’t reported the correction that’s been there; the correction in many markets has been greater than some of the indices would indicate. There seems to be a lag factor in the indices.”
He said some of the economic doom and gloom is misplaced, even in relation to unemployment figures surging.
“Some of those are short-term factors. By having our own correction beforehand, you would have thought the economy would have been more affected than it is,” he said. “The truth of the matter is that the European economy is proving remarkably robust and we’re an integral part of the European economy. We’ve had the correction, it’s a double correction, and that obviously has impacted employment. It hasn’t impacted employment to the degree which I thought it might and it hasn’t affected the property market to the extent we thought it might.”
FitzGerald said he expects Sherry FitzGerald’s turnover this year to be in the region of €63m, similar to the figure recorded in 2006. Rumours of industry-wide pay cuts , three-day weeks, lay-offs, new homes agents looking to be paid extra to open showhouses, and graduates being told not to turn up for work are not reflected in his business, he said.
“We employ 480 people full-time in 32 different offices in five cities. In addition, our franchise business has 102 offices. That’s nearly a thousand people and that hasn’t changed greatly numbers-wise from two years ago. There’s still business being done.”
FitzGerald said the company hasn’t cut salaries but has “an entrepreneurial model” of pay, where there “has to be a degree of flex”, suggesting commission at least is down. More than a third of Sherry FitzGerald’s staff are now in London, where prices have also collapsed. He said its 30 branches there do lettings and property management, which helped keep business going as sales fell. It “is still doing remarkably well”, he said. His suspicion, however, is that the Irish market will recover first.
“I say that because we’re going to have a greater correction, because we had a pre-subprime crisis correction. Some people would say that the correction pre-subprime was in the order of 10%-15% and that’s without inflation so the actual correction is more significant than anybody is talking about. Secondly, the Irish are born entrepreneurs and are shrewd. Once there’s a faint scent in the media of a correction, people will be quick out of the blocks and I suppose the English are possibly a bit more conservative people. If the Irish see a queue they want to find a way to jump it, if the English see a queue they decide whether they want to join it.”
FitzGerald said Ireland has a lot to thank former British prime minister Margaret Thatcher for.
“At a time when US companies were looking for an entry point into Europe, the choice was between England and Ireland. Because Thatcher was taking such an ambivalent view on Europe, and was sending out a lot of negative signals on British participation in Europe, a lot of American corporations in the late 1980s and 1990s voted with their feet and came to Ireland rather than England. We wouldn’t have the market we have today if it wasn’t for Thatcher’s Euroscepticism. Now there are a lot of them here, and in a sense they have a sustained base and they like working with Irish people. They like the culture.”
When asked if more developers will go bust, FitzGerald answered diplomatically: "What possibly may happen is there’ll be a shift in wealth from people who may have overexpanded to people who took a more conservative view. Assets will switch hands.
“They’re very sad cases for the people involved but they’re not affecting the GNP of the country. There’s enough capital and prosperity in the country to take over the assets. The wealth hasn’t gone away, it’s just in hiding.”
June 15, 2008