As I write at the beginning of September, the noise coming out of the residential market remains largely about high levels of activity and a remarkably buoyant marketplace.
There is no doubt that since the market was “reopened” following lockdown there has been a significant uplift in business activity but, whilst not wishing to p*ss on anybody’s parade, it does look unlikely to continue at the same level and not all of the current activity will result in putting money in the bank. Indeed, anecdotal evidence from across my myriad of estate agency clients in recent days is indicating a slight slowdown in commitment. For those operating in the industry it is certainly a "make hay whilst the sun shines" approach.
The current marketplace is slightly unusual in that both sides of the supply and demand equation are reasonably strong. Normally the market is defined by either a lack of supply to meet demand or a lack of demand to take up a supply. There is currently a much better balance to both sides of the equation but my “gut feel” is that we will start to move into a period where supply starts to run ahead of demand, placing price, once again, at the centre of activity.
The increase in activity has not been universally matched by the performance of key operators in the business. Conveyancers and mortgage lenders are, in many situations, falling behind and adding to delays with the average transaction now taking closer to eighteen weeks to complete from the sale being agreed. Many smaller conveyancers have still got staff on furlough and I am also hearing stories of situations of staff working from home with paper files. The lack of investment in IT is, in these cases, hindering their client’s transactions and, whilst painful for those engaging with them at the moment, will, hopefully, signal the end for these dinosaur operators.
Mortgage lenders have, understandably, become more cautious in their lending with many higher loan to value schemes withdrawn from the market. Again, some lenders have not risen to the challenge of covid19 as well as others, resulting in longer delays than is conducive to a successfully operating market.
Two elements that can help speed up transactions are emerging. The first is for a seller to be “legal ready” by the time a buyer is found. This can easily save two to four weeks in a transaction (particularly if leasehold) and involves getting all of the paperwork and answers to pre contract questions in place as soon as a property is marketed. Propertymark are rightly promoting this protocol but the agency and conveyancing sectors, despite a wonderful opportunity to differentiate and improve success and cashflow, are being slow to respond.
The second is for buyers to have secured a mortgage agreement in principle (AIP) before agreeing a sale. Again this can save time and improve success rates but, despite a commercial opportunity and the chance of reducing abortive transactions, the estate agency market has not done enough to educate potential buyers of the benefits of getting an AIP in place.
The Government introduced a stamp duty holiday to boost activity in the property market and this undoubtedly boosted activity at least in the short term but the current scheme ends on March 31st 2021 and there is a concern that future business has just been brought forward and that the market could “fall off a cliff” when the incentives are pulled.
Help to Buy has been a sop to developers in recent years. Touted as helping first time buyers, it has undoubtedly encouraged house building and enabled many to get on the property ladder. The scheme has been extended but what happens when it ends and what happens if purchasers find themselves having to service a deferred debt when property prices are perhaps falling and unemployment is rising?
Of course, there is an opportunity for Government to use this period to review and overhaul stamp duty in its entirety. It is a widely held view that people should not be taxed when buying but perhaps on selling and reaping profits from their disposal. Another variable would be to only see tax being paid on the differential in price between sale and purchase on acquisition or at a reduced level for those downsizing and thus freeing up bigger and higher priced properties to try and create more choice and mobility. At the present time people only move home every twenty-one years and anything that creates greater mobility and transactional volumes would be good for the economy as property sales generate a huge amount of ancillary economic activity.
The lettings market has also generally been strong but landlords, who have taken a bit of a bashing by Government in recent years, now have to face longer notice periods to evict tenants on top of all of the previous covid induced and politically motivated changes they have seen.
Notice periods on assured shorthold tenancies have, until March 2021, been extended from two to six months unless shortened by agreement between the parties or because of elements of tenancy default such as non-payment of rent. Eviction processes have also come under scrutiny and timeframes have become elongated. This means that a landlord seeking possession will have to plan further ahead and, if looking to sell, any agent will need to be transparent as to timeframes or risk falling foul of not revealing “material information” under Consumer Protection Regulations.
Landlords pay higher stamp duty if buying investment properties and no longer attract tax relief on mortgages. Wear and tear benefits have also been eroded. This has levelled the playing field in competing with first time buyers for property which many would see as a good thing and is certainly part of Tory philosophy.
However, when as a Government you have an eye on the need for votes and there are around 8 million tenants and 2 million landlords, it is clear that which side potentially holds the upper hand.
Having run for several months, September will see the Government’s job retention scheme rules change and October is scheduled to be the last month that this support will continue.
There are estimated to be between 8-9 million people currently furloughed and, sadly, estimates indicate that probably between 1 and 1.5 million of these are effectively unemployed now but will have it confirmed in the coming quarter.
The UK is, unsurprisingly, in recession and we have Brexit looming at year end with lots of unanswered questions as to what this will mean in both the short and longer term.
Ironically, I feel that the effects of covid19 on Brexit could actually be quite positive as this is a global pandemic and the EU countries (and ourselves) need to ensure that neither “pulls up the political and economic drawbridge” and subsequently shoots themselves in both feet. Increasing spending within the UK would be helpful to economic recovery but we do still need to be able to trade sensibly with the EU and other countries.
In the UK property market we are about to enter a new period of Portal Wars as the big three (Rightmove, Zoopla and OntheMarket) all take new positions in regards their pricing and subscription models. They will be doing so whilst facing a wave of competition from new and revamped entrants who, in the main, have better technological platforms and are offering new services, including better ways of identifying opportunities and monetising the traffic rather than just the transactions through better engagement and “stickiness” of offering.
Of course, the big three currently, and crucially, have the eyeballs of consumers. Agents, despite the rhetoric, have been reticent to change and take decisions over which baskets they are going to keep their eggs in.
Covid19 initially forced agents to review all aspects of their business but the vast majority have simply reverted to type since returning from lockdown and have made few, if any, fundamental changes to the way they operate. This, in my opinion, is a missed opportunity and will potentially be extremely damaging as there is undoubtedly a paradigm shift occurring but so many seem oblivious to it and will remain so, until it is too late!
My article on covid19 representing the biggest paradigm shift in the industry since the introduction of the internet, can be read here:
Those businesses who have reviewed, planned and taken action on the four Ps of people, premises, portals and proptech, have focused on the two key Ps of productivity and proposition and will, once successfully implemented, create the seventh P of greater profitability!
The much lauded ROPA (Report on Property Agents) has just completed a new industry consultation on a proposed new code of conduct and practice.
What a farce! The proposal is insipid and lacks anything robust. I hope the feedback to the consultation makes this clear.
The reality is that we have enough regulation covering the industry but don’t have a strong policing and enforcement regime. This is vital.
Unlike others, I don’t personally see ROPA being in place anytime soon for several reasons. (1) A code needs to be agreed. (2) If qualifications are to be mandatory across the industry, an appropriate syllabus will need creating (3) On the basis that those of us with existing qualifications will not simply be “grandfathered” into the new order, a “conversion” qualification will be needed. (4) The 75% plus of the industry that doesn’t currently have a qualification will need a timeframe within which to comply and (5) We will then need a regulatory and licensing regime in place to administer, control and manage.
We have had competency on the agenda since 1979 with section 22 of the Estate Agents Act covering but never having been implemented. Successive Governments have always preferred competition over competency and with covid19 and Brexit, I also don’t see adding more red tape and cost to the industry as being at the top of the current agenda.
Don’t get me wrong, I am broadly in favour of ROPA and we have to start the process somewhere but I’m not holding my breath and certainly not panicking about it just yet.
One organisation that would like to think it is at the heart of all things ROPA and sees itself as a potential industry regulator is Propertymark – the overriding group that includes the NAEA, ARLA and NAVA.
Unfortunately, they are currently hardly fit for purpose and have demonstrated a complete inability to keep their own house in order let alone be the organisation that sets and maintains the standards of the rest of us!
Under Christopher Hamer’s leadership they have been focused on the goal of being the educators and regulators of the industry to the detriment of so much else. Rumours of an overly dictatorial approach have been rife and may have contributed to some of the issues that have become public knowledge.
In the last few weeks we have seen David Cox (CEO ARLA) and Mark Hayward (CEO NAEA) resign with their positions due to be combined in a new single CEO role. The recruitment brief for this position has been specifically for the appointed person to not have a property background but to come from a regulatory background. This brief was presumably drawn up and agreed by the Board but it had the hand of Christopher Hamer all over it.
As I write this at the beginning of September, Christopher Hamer has also now resigned and Propertymark have issued a weak statement about him coming to the end of his contract (that no-one seemed to know about). I genuinely hope that it was actually a night of the long knives and that the Governing Board, who appear to have been neutered and impotent in recent times, finally grew a collective pair and are now looking to bring about change. I know many of the Board members personally and they are good people but they have been incredibly quiet in recent months, seemingly under the thumb of their now, former leader.
The NAEA and ARLA used to be trade bodies, supporting and promoting the membership. For the last couple of decades they have invested in becoming educators and trying to raise standards. This is generally fine and has enabled them to have new income streams to support their subscription model as well as seeking to improve quality across the industry. They would now, of course, describe themselves as a professional body. However, now they are seeking to become regulators, like the RICS, which might seem logical but, there are flaws.
Firstly, they clearly need to get their own house in order and have an organisational structure and system of governance that stands scrutiny.
It has recently been announced that Propertymark has agreed a settlement with HMRC for failures to pay VAT. The amount has remained officially undisclosed but the accounts show a provision from last year of c£679,000 which one assumes covers some or all of this failure.
In how many organisations would a failure of this magnitude not have consequences (perhaps it has in the departure of its three most senior people) yet we have heard nothing of changes in accounting or of new accountants and auditors being appointed. If Propertymark undertook an inspection of a member and found such discrepencies there would, rightly, be disciplinary action, fines, expulsion etc.
And this is the organisation that would like to regulate the industry!
Of course, the changes in the triumvirate at the top of the organisation provide an opportunity to get the house in order and concentrate on what they should be doing. Standing up for standards, lobbying and working with Government and supporting the membership with marketing and education. A new strategic approach is needed, more fit for purpose and that will see Propertymark achieve what most of us would like to see in benefitting both individual members and the industry.
As a Fellow of both NAEA and ARLA I hope they get it right. If the separate parts of the group merge into one entity, I might lose a few initials after my name but hopefully will see a reduction in my annual subscriptions too! (fat chance!) More importantly, I would like to see a position where I am proud of belonging to the organisation, not embarrassed by its non-transparent modus operandi.
It might seem as if I’m on a rant against authority in this blog and perhaps I am. My overriding view is that we will not see a market collapse and prices, whilst they may adjust, will hold up well and grow in the longer term.
I am not generally in favour of Government intervention and artificial stimuli in markets although the response to the unprecedented covid health crisis has required huge levels of support to be, rightly, actioned quickly across the entire economy and without fear of long-term economic damage.
Hopefully, the coming months will see a brighter future emerge. The economic and well-being upturn of finding a vaccine will be immense and, whilst some things will never be the same and will have altered forever, I am confident that we can all learn and that the speed of change will continue and that those that embrace new thinking will find new opportunities and do well.
Michael S Day MBA FRICS FNAEA FARLA
Managing Director Integra Property Services
Founder Member Agents Together