At the beginning of the year I wrote an article for PROPERTY INDUSTRY EYE asking whether there will be ‘blood on the carpet’ this year among agents who have been too slow to change.
The article majored on agents needing to embrace change and sharpen up their acts in the light of a number of factors that were going to impact on them.
The opening paragraphs read:
“This will be another challenging year for the residential property industry as changes in legislation, taxation and the political landscape will all continue to impact with associated knock-on effects in the economy and market confidence.
The pace of change in new technologies and business models will also continue apace and grow in influence with both consumers and those who serve them.
I believe we will see much more ‘blood on the carpet’ where agents have been too slow or unable to change, in a market where transactional volumes are unlikely to be significantly different to 2016.”
It seems appropriate some six months down the line and in the immediate aftermath of a General Election that was called to strengthen the position of the Prime Minister, Theresa May, to revisit this theme.
The outcome of the General Election has created anything but the “strong and stable” situation that an overly confident, and some would say arrogant, Prime Minister wanted, with the Tories now presiding over a minority Government and having to try and prop up their ability to run the country by getting into bed with the Democratic Unionist Party of Northern Ireland.
Labour made strong gains in the voting but still fell well short of enough seats to form a Government despite the rhetoric subsequently that could make the unaware feel that they had actually won!
Our negotiations with the EU are about to commence with the Europeans well aware that they are dealing with a mortally wounded Prime Minister and a Government with less power than it had when it triggered Article 50.
So what does it mean for the housing market?
In theory, with no actual change of Government, it should mean more of the same and steady as she goes. It may, of course, mean that some proposed legislation like the proposed ban on tenants’ fees, gets delayed, although I feel that the political will across Westminster makes its introduction inevitable and letting agents would be best advised to be reviewing and re-planning their business models in readiness of losing what for many is a sizeable income stream.
I also believe that we are likely to see a blanket ban on tenant fees as this will be much easier to “police” than a mixed bag of some costs and fees being chargeable and others not.
(*Update - the tenant fee ban was included in the Queen's Speech)
I therefore expect to see a number of letting agents who have built their business by offering low landlord fees and then making them up on tenant fees, struggle to make a profitable return unless they rapidly get ahead of the game with a new business approach.
The ongoing march of the major online estate agents continues, with the market capitalisation of Purplebricks now standing at over £1.1bn.
Estate agents continue to complain about their approach but are doing little other than draw more of the public’s attention to a new and different operator in the market.
Much is made of Purplebricks’ marketing which seemingly ignores the payment up-front irrespective of result aspect when compared to a ‘no sale, no fee’ basis. This can however be easily confronted and countered by the “traditional” players.
A new trade group – CIELA – exists to attack both the online and corporate operators but as yet has not produced any data to my knowledge to extol the merits or differences amongst the independent agents they hope to represent.
My position is simple. If an agent is honest and lawful, then good luck to them. They will survive based on their ability to convince the consumer about their offering, win business and perform and deliver in the marketplace irrespective of ownership structure etc.
There are good operators across all segments of the market in the same way that there are poor ones.
The major downside of a hung Parliament and creation of a minority Government is potentially further instability for the economy. With Brexit already causing concerns, a weaker pound and rising inflation, the tendency to sit on one’s hands may increase and transactional volumes may slide further as confidence and the public ‘feel good factor’ diminishes.
I felt we would see “blood on the carpet” during 2017 and beyond and I now believe that this will be likely to increase. I still see far too few agents adjusting their approaches significantly to meet the new challenges they face.
For many agents there is still time to review their businesses, concentrate on differentiation, tighten cost controls and increase productivity through improved communication and customer service.
I feel that a reduction in the number of agents and people engaged in the business is inevitable in the weeks and months ahead, but whilst I expect the number of offices to reduce, in reality this is only likely to be back to pre-2008 levels. This, in itself, will allow the cake to be cut differently for those with the ability and nous to survive and thrive.
The private rental sector will not bale out agents as it has over the last ten years. The lettings market has enjoyed a period of unprecedented growth but this is not set to continue as punitive measures such as increased stamp duty on investment purchases and reduced tax relief on mortgages and wear and tear take effect.
Coupled with a period of low or no capital growth, this is likely to see more landlords exit than join the PRS. With the greater possibility of a future Labour Government, we could have the spectre of rent controls to contend with too.
In looking for positives, the Government will now need to temper some of its approach in order to get decisions through Parliament. This will almost certainly result in some manifesto plans being ditched or watered down. The DUP are more to the left than the present Tory party and will want to see a reduction in certain austerity measures, some greater infrastructure investment and a lighter-touch Brexit. This may actually see some small boosts economically, particularly, of course, in Northern Ireland!
To conclude, there is obviously much uncertainty but there will still be a sales and lettings market. People still have to live somewhere. The market is always made up of four Ds: death, divorce, debt and discretion. We have already seen some reduction amongst discretionary movers but the other three Ds will continue as normal.
A number of my clients have taken positive action over the last year and are better placed to take advantage of changing conditions. New ways of working and new marketing channels are being used alongside a real focus on productivity and tight cost control.
Property prices and rental levels, particularly in the south of the country, have reduced or are, at best, flat. This means that agents need to better manage their stock and work with their vendor and landlord clients to create compelling listings and subsequent sales and lets. Where this is being managed well, I see agents still arranging good levels of transactions.
To conclude, Billy Ocean once sang that “When the going gets tough, the tough get going”.
He was right: standing still is going backwards. Whilst I feel the number of losers may increase, there will definitely be winners amongst those who think, plan and act appropriately.
Michael S Day MBA FRICS FNAEA
Integra Property Services