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‘Letting agents are sleepwalking into disaster’, claims build-to-rent pioneer

SDL MANAGEMENT NS

The build-to-rent brigade has fired the first real shots over the bows of the traditional letting agency sector, saying it faces wipe-out.

Harry Downes, founder and managing director of build-to-rent developer Fizzy Living, has expressed derision that so many agents point to the lettings fee ban as the biggest threat to their businesses.

While a few facts get in the way of his opinion piece, its tone is the unmistakable drawing up of battle lines.

The fees ban is apparently “due to come into force at the year’s end” – highly unlikely, of course, since as EYE reported on Friday it is not on the Government’s legislative timetable.

However, it is agents’ attitudes that are the real object of Downes’ attack.

He says that after the lettings fee ban, lack of new landlords came a distant second in worries for agents.

“Meanwhile, other challenges like internal inefficiencies and lack of capacity seemed barely on the agents’ radar,” says Downes

“What’s alarming about these results is not that agents find the removal of these charges – paid for by tenants in exchange for alleged services like referencing and inventory checks – inconvenient.

“Anything restricting income is obviously a problem for a business.

“It’s the fact such a large majority of agents appear to view this single issue as a substantially bigger threat than factors which could wipe out lettings agencies altogether.”

He goes on to say that many landlords face “demise”, having had “many financial privileges removed”.

Fortunately, build-to-rent seems to be the white knight for tenants, riding to the rescue – according to Downes, anyway.

“Developers, like Fizzy Living, are also challenging the hegemony* of the old buy-to-let models, attracting aspirational tenants who once would have paid top dollar to a traditional landlord.

“Ultimately, then, many landlords facing escalating costs may decide to get out while their portfolios remain profitable. If this happens on a big enough scale, lettings agents will be in trouble.”

Then there are other threats faced by traditional letting agents, including the apparently ‘fee free’ online models.

Downes continues: “Lettings agents also seem to overlook competition from online portals.

“Fee-free and often more accessible than their high street counterparts, brands like Purplebricks are rapidly expanding their lettings portfolios to accompany an already popular purchase arm.

“These could well make the middle-men of the rental world redundant in a few years.

“So, with lettings agents facing two existential threats, why are they obsessing over the loss of a single income stream?

“Clearly, these fees have ballooned out of all proportion.

“What was supposed to be a supplementary form of income, has become a lifeline.

“In a market where demand is high, lettings agents have exploited their positions as guardians of rental properties to charge tenants exorbitant amounts to do very little (some even work both sides of the deal), a practice fortunately being stamped out.

“But, in a weird twist of poetic justice, such greed has returned to hit them hardest.

“Yes, tenants are in many cases ripped off by agents, with little means of redress, and it is for them that I imagine the Chancellor abolished the charges in his last Autumn Statement [a minor point, he didn't – he announced the abolition].

“But the fees have also acted as a panacea for lettings agents, providing them with short-term profit blinding them to the need to engage with a changing rental landscape.

“The agents were likely sleepwalking towards a cliff face and now the panacea’s being pulled, panic is setting in.”

The full blog is on City A.M:

http://www.cityam.com/274701/greedy-letting-agents-only-have-themselves-blame-thei

Downes does not reference where he got his 42% figure from, but it was the Fixflo survey, reported by us last month.

http://www.propertyindustryeye.com/lettings-fees-ban-will-be-our-biggest-challenge-say-agents/

* We were also a bit baffled by ‘hegemony’ and sent us chasing to the dictionary: it means domination.

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