Michael Day's Market Update

There are conflicting reports on the strength or otherwise of the residential property market in the early weeks of 2018. Certainly there is more activity than was seen towards the end of 2017 but whether this reflects a genuine upturn is more difficult to ascertain.

Trading results in the industry have been mixed. Countrywide whose largely “self-inflicted” woes have seen their profits collapse and their capital value reduce by 75% and Foxtons, once the flagship of London estate agency, hasve seen their profits plummet in the face of a tough London market, increasing competition and growing regulation. Connells, by contrast have just posted excellent figures, albeit boosted by a windfall sale of shares in Zoopla.

There is no doubt that there are some huge challenges in the marketplace and for its operators. The growth in online operators such as Purple Bricks and their many clones has been instrumental in driving fees lower and the “traditional agency operators” have often been weak in reacting, resulting in pulling the only levers many of them seem to know how to pull – reducing fees further and over-valuing to win stock. Neither of which is clever or sustainable.  

Purple Bricks are, in fact, making as much money per sale as the average High Street estate agent. They get paid for every house listed and charge extra for things such as viewings and other services. Like other agents they only sell half what they take onto the market but, unlike other agents, they get paid by everyone not just those who successfully sell.

The online operators also gain from lower overheads and operate without the baggage of the sacred cows that many agents still persist in nurturing.

At the start of 2017 I predicted a large amount of “blood on the carpet” in the industry. That grisly picture may not have yet fully emerged but it is coming. Business is fragmenting unprofitably amongst too many players and, as a terrible generalisation, the quality of those within the industry is at the lowest level I have seen in my 43 years in the business. Many, often university graduates, seem to think the world owes them a living without having to demonstrate their worth and “churn” amongst employees is at all-time highs. Many businesses are not helping by taking lazy approaches to recruitment, training and development that simply exasperates the issue.

In the face of this damning indictment of much of the industry, there are, of course, exceptions and hopefully the cream will rise to the surface. For all the bland and poor operators fighting it out in a “sea of sameness” there are examples of great businesses who will hopefully be able to capitalise more and more through great service delivery and performance, differentiation and innovation.

Proptech is the current buzz word for raising seemingly bottomless pits of money from investors based on delivering a whizz bang solution to, what is often, not really an issue that needed a solution. Of course there will be some new and exciting products and services emerge from the property market swamp.

Good businesses will have a clear plan and continue to invest sensibly and train and reward their best people. If they don’t they will slip into the swamp with the rest.

The Government is likely to continue to interfere with the market – banning tenant fees, reviewing and possibly curtailing referral fees, being party to greater requirements on transparency and use of personal data and on putting more and more emphasis on the rights of the consumer.

Recent changes in stamp duty have virtually killed off the buy to let investor market but, as planned, opened the way for more first time buyers. Stamp duty levels at the upper end are however so punitive that certain parts of the market have virtually ground to a halt.

This is all fine and I don’t have an issue with the general tenet and flow. The problem is that the unscrupulous and misguided in the industry need to be punished when they are caught and, in a time when revenues are being squeezed, we are likely to see more falling into this category because they do not invest the time and resources into ensuring their business models are compliant.

The overall market in 2018 is, in my opinion, likely to see transactional numbers similar to 2017. Inflation is rising and interest rates will follow suit.

I expect to see consolidation within the industry and growing numbers of operators fall by the wayside leaving the playing field free for good operators providing quality services at decent fees. Ultimately this will be a good thing but the journey might be a bumpy  and painful one.

Managing Director