The writing is on the wall for at least three big estate agencies that I’m aware of, all of whom are struggling for survival as a result of the current challenging climate in the housing sector.
But how many others are likely to go under this year?
According to a recent report by insolvency specialists Begbies Traynor, a quarter of estate agents in the UK are in financial distress – that means around 5,000 agencies – of which a third are unlikely to be trading in three years’ time.
We’ve already seen profit warnings from the likes of Countrywide and Foxtons, whose share prices have slumped. At one point, Foxtons was down to 87p – compared to a high in 2014 when it reached 373p. That’s quite a hit if you’re an investor.
We should all heed Foxtons chief executive Nic Budden when he says he expects trading conditions in 2017 to remain challenging – with volumes of sales possibly even lower than 2016.
At times like this, you rely on your lettings divisions to pull you through – yet their lettings business remained static, albeit overtaking its sales income, which suggests their model is failing.
Its expansion plans also appear to have been more or less put on hold, with only two more branches set to open in the near future instead of the additional 35 it had previously announced.
The biggest danger zone is clearly London which has become a blood bath, with the decline in foreign buyers, Stamp Duty changes and Brexit. But will there be a ripple effect across the country?
Certainly, we’re seeing agencies in the Home Counties struggling because of the oversupply of agents and the reduction in fees.
So what does this mean for the industry as a whole? I predict a year of change and consolidation with a raft of mergers and acquisitions on the horizon.
However, estate agents hoping to attract a premium price for their businesses have missed the boat, with fewer buyers with deep pockets willing to take the risk, at a time of uncertainty as to which business model works.
Industry needs to act over delays
Why is there such an unwillingness among our industry bodies to combine their creative might and invest in the kind of technology that will prevent delays in property sales, thereby reducing the number of failed transactions?
In every other walk of life, giant strides are taking place in new technology, yet it feels we are stuck in the dark ages when it comes to speeding up our conveyancing, surveying and mortgage processes.
Whatever Rightmove or anyone else says about the transaction process speeding up, that’s simply not our own experience. It’s taking longer and longer to get transactions through – around 17 weeks on average – because of the delays we’re experiencing at the hands of third parties.
What reaction do you get when you explain to buyers and sellers that we’re not joined up as an industry, or that many councils still have an antiquated system of providing search results or there aren’t enough conveyancers to speed things? I bet people in this day and age can’t believe their ears!
What is stopping the Law Society, the Chartered Institute of Surveyors, the Society of Licensed Conveyers and mortgage providers from getting together and creating a common trading platform that will benefit everybody in the long term? We can put a man on the moon but we can’t speed up the sales process – how ludicrous is that?
Of course, it boils down to money. But if the income derived from these processes are transaction driven, surely this investment will pay for itself in the long term with fewer transactions being pulled at the last minute due to delays and third parties dragging their heels.
Or should we be going back to having an industry-wide pre-sale pack, like a Home Information Pack, to deliver a speedy sale?
The public wants transactions to go through more quickly, within around six weeks, and a log book with pre-contract enquiries, legal information, a statement of condition from a surveyor, EPCs and a mortgage offer – backed by the right technology – is exactly what we need if we want to benefit not only our customers, but the industry too. It’s time for a rethink.
Why consult on a foregone conclusion?
Why is the government even bothering to consult in March/April on the proposed lettings fee ban when all we have to do is look at what happened to rents in Scotland after fees were banned there in 2012?
Annual rents there are now among the highest in the UK and many prospective landlords have been put off buy-to-let by the increased fees they are now expected to pay.
When the new ban is introduced, agents will either increase the rent to tenants in the first month to take the fee out and send the landlord the remainder, or they will add it to the rent in 12 equal instalments and spread it out across the year? How are you intending to pass on the costs?
Government officials have apparently been to Scotland recently to study the consequences of the ban. You don’t need to be a rocket scientist to understand the impact. As everyone has been saying all along, it’s the tenants who end up suffering the consequences.
Surely they can see that it’s a big mistake with implications not just for tenants, but for landlords and agents – and it could leave many out of business in the long run.
Paul Smith is CEO of Spicerhaart