The current challenges in the property market have been well documented with ongoing uncertainty over Brexit at the fore and a change of Tory Party leadership, and therefore a new Prime Minister, also “in the mix”. However, there are some strong underlying elements of positivity that, perhaps, have been allowed to slip “under the radar.” With consumers desperate to "get on with their lives", agents who are focusing on the motivation of their clients and customers and working hard on sensible pricing and on personal attention and service are seeing greater levels of transactions as a result.
These positive factors include:
- The current number of people employed in the UK is at the highest level ever and this makes for greater levels of income and therefore taxation to pay for our infrastructure and services and also enables people to consider major financial choices such as moving home.
- Inflation remains at a low level and interest rates are also at close to historic lows.
- Housing demand exceeds supply
The home selling and buying market has always “ebbed and flowed” with volumes and prices rising and falling in line with economic reality and public confidence. It has, however, always been a largely “safe haven” financially and, for most people who own their own property, an investment second and a home first.
People don’t move home every day and it is the medium to longer term view that needs to be taken and my prognosis is that, despite some increases in housebuilding, the long-term balance of supply and demand and therefore, value of, property is secure. Of course, affordability is an issue and more supply would help address that issue but the economic picture has seen affordability marginally improve in recent months for those looking to buy.
The lettings market is currently subject to an increasing amount of legislation and change, much of which, is seeking to provide tenants with a fairer and more affordable position.
The Tenants Fee Act became law on June 1st and removes the ability of agents and landlords to make any charges to tenants (with one or two minor exceptions). The size of security deposit payable by tenants has also now been capped at five weeks rent (on tenancies up to £50,000pa and six weeks on tenancies above that figure).
New procedures and documentation for the serving of section 21 notices have also been introduced and a new "How to Rent” guide (which must be issued with every tenancy) published.
Unfortunately, these changes (on top of an ongoing reduction in tax benefits for landlords) are likely to result in many landlords leaving the market and a reduced availability of stock to rent (although a short term increase in property for sale - certainly if I were an agent, I would be targeting landlords for potential business either in lettinsg or as vendors). This, with continuing increases in demand, will likely see rents rise, particularly if the balance of supply and demand shifts further. Whilst the position for tenants will undoubtedly be more transparent, it may not end up being better financially.
The challenging market conditions are taking their toll on those operating as estate agents and, in particular, “execution only” service brokers – the so-called “online agents”
Cheap fees, and those paid for upfront (with no guarantee of success) may look attractive initially but ask those that had instructed Emoov, Tepilo, Hatched or House Network in recent weeks now that these businesses have all failed and closed and left sellers out of pocket as the fees they had paid have been spent and lost. Tepilo also picked up a £70,000 fine from HMRC for failures of regulatory compliance.
Easy Property (certainly in its present form) looks set to be the next casualty and Purple Bricks (the largest player in the sector) has suffered (partly due to its overseas forays) and is likely to readjust and consolidate its operations more. Its major shareholder, the German giant, Axel Springer, possibly moving towards a takeover. Unlike many in the industry, I don't see the current situation as the beginning of the end for Purple Bricks but merely the end of the beginning and I expect a new, improved version to emerge in the months ahead.
The old expression that there is “no such thing as a free lunch” is, of course, true and I am again reminded of the Red Adair quote that “If you think it’s expensive to use a professional, wait until you’ve used an amateur”.
And Benjamin Franklin famously said: “The bitterness of poor quality remains long after the sweetness of low price is forgotten.”
There is no pleasure in seeing businesses in our industry fail but there has to be a growing sense of realism about the true costs of providing a high quality, professional and compliant service that delivers the result the customer seeks. For some time, I have been saying that I expect a cull of around 25% of “outlets” across the industry, and this is undoubtedly happening with consolidations and closures being reported daily.
It is, of course, not just the “online sector” that has a monopoly on failure. Countrywide, who were the UK’s largest estate agency group has made a series of disastrous decisions in recent years and looks almost certain to be broken up whilst there is still value in some key parts of the business. As I write its share price is hovering around 4p, down from a high of around £6 just four years ago.
A recent report showed that estate agencies are currently the fastest closing sector on the High Street.
Agents can simply no longer afford to be reactive. Clear business plans are needed that differentiate and that are based on reducing fixed costs and providing high levels of efficiency and service.
Consumers want to deal with estate agents in different ways to how they did five or ten years ago. Our High Streets are becoming nocturnal economically yet agents still tend to be open nine to five when no-one is around.
My view is that, once the current “blood bath” dissipates, there will emerge a new breed of agent offering a more flexible approach and who finally successfully combines the best of technology with the best of personal and professional service. Agents will find innovative ways of working with consumers for a “lifetime” - basing this on relationships and not just occasional transactions will be key. Those that operate within the industry will move towards having their performance and rewards linked to longer term goals not just short-term results.
There are plenty of opportunities if agents take the time to find them.
In lettings for example, a recent report from Zoopla showed the five main concerns that landlords have:
· 56% said they were concerned about finding suitable tenants
· 55% said they were concerned about tenants looking after the property
· 47% said they were concerned about tenants paying on time
· 39% said they were concerned with keeping up with increased regulations
· 36% said they were concerned about future changes to legislation
All of these will be proactively handled and managed by a professional agent who will provide the “peace of mind” to a landlord that their property is being looked after and that their investment is being protected and maximised. For a tenant, they know that the property they are renting will be well maintained, safe and, should any issues arise, they will be dealt with quickly and effectively.
With an ageing population, the number of retirement living schemes is increasing. These provide a “lifestyle choice” rather than just a property and the estate agency market has generally failed to grasp and differentiate the way in which these properties should be marketed.
It is estimated that around 10% of these properties change hands every year due to owners either dying or moving into care homes that provide more support. There is clearly a rapidly growing market sector here with a higher rate of annual turnover than the second hand market which currently sees less than 5% of properties change hands every year.
Land and New Homes is another growth sector. Last year there were some 222,000 new home starts. Whilst this remains someway short of the Government target of 300,000 per annum it is up on recent years and with encouragement from Government through Help to Buy and relaxations in planning, is likely to continue to grow.
To conclude: There is a lot going on and a lot “coming down the pipe”. Stepping back and reviewing all aspects of a business’s operation is key and creating a clear plan for success, vital.
As always, I am here to help – please make contact – it could be the best call you ever make!
Michael S Day MBA FRICS FNAEA FARLA
Managing Director