Foxtons and Countrywide profits fall due to sluggish property market

Foxtons and Countrywide have reported big falls in profits as they continue to be dogged by the sluggish property market.

London-based Foxtons posted a 64pc fall in profits, while Countrywide, the UK’s biggest estate agent, recorded a 98pc collapse in pre-tax profits in the first half of the year.

Both companies’ shares slumped in early trading, with Foxtons down 5.3pc and Countrywide, which owns brands such as Hamptons, down 9.7pc to a record low.

Once known for its pioneering coffee shop-style outlets and fleet of Mini cars, Foxtons floated in 2013 ahead of a market peak and has since failed more than once to meet market expectations.  Foxtons said the market had been hampered by “unprecedented economic and political uncertainty” as it revealed that first-half profits plummeted from £10.5m to £3.8m in the six months to the end of June.

The decline was driven by a 29pc drop in revenue from property sales against tough comparisons from last year, when the company benefitted from a “surge in transactions” before stamp duty went up.

Meanwhile, Countrywide said its pre-tax profits fell to £447,000 in the same period from £24.3m last year, as the number of homes it sold fell 20pc compared to the same period last year. The company added it was “seeing increased differences between vendors and buyers on price expectations while both groups wait to see how the political situation unfolds”.

Countrywide is in the process of streamlining its business and boosting its digital offering to compete with online-only estate agents. Anthony Codling, an analyst at Jefferies said: “The costs of this strategy are being felt before the benefits.” He added: “We continue to believe that Countrywide is doing the right things.”

Countrywide is less exposed than Foxtons to London, just under a quarter of total income is made from the Capital, but it still had this to say: “The London housing market continues to experience low levels of activity owing to political and economic uncertainty, particularly in relation to Brexit, which is felt more acutely in the capital.”

“This, combined with the effects of stamp duty changes affecting homes over £1million and on second homes, means the market for housing transactions in London continued to decline in the six months to June 2017.  We are also seeing increased differences between vendors and buyers on price expectations while both groups wait to see how the political situation unfolds. We estimate that the supply of properties listed in London has fallen around 13 per cent in the first half of 2017 compared to 2016.”

Foxtons said the changes to stamp duty had continued to weigh on the property market, adding that the unexpected general election had led to a “further slowing” of transaction levels in the second quarter.

It warned that it expected trading conditions to be “challenging” for the rest of the year, but insisted that London would remain a “highly attractive property market for sales and lettings”. Despite the results, Mr Codling was positive about the controversial estate agent. He said: “Foxtons is a fighter and although the results took a hit in the first half, with cash on its balance sheet it has the stamina to stay in the ring for many more rounds to come.”

Neil Wilson at ETX Capital said: “We knew it was going to be rough, with the overall market for mortgage transaction down 7 per cent, and both Foxtons and Countrywide reported dismal first-half figures.”

In many ways it is unfair to compare Foxtons’ performance in the first half of this year with the first half of last year: 2016’s figure was skewed by a sudden leap in sales in the run-up to new rules on stamp duty, introduced at the beginning of April last year, which caused UK housing transactions to peak in the month before as over 170,000 homes were sold.

But the fact sales revenues fell three per cent in the second quarter will be discouraging to investors, who could reasonably have expected an uplift.

U.K. property values have been rising for five years after the government stoked demand by introducing programs such as Help to Buy. Prices for first-time buyers reached 5.3 times average earnings in the final quarter of 2016, just short of the 5.4 times ratio at the market’s peak in 2007, according to Nationwide Building Society.

In London, the ratio was 10.1 times earnings at the end of last year, down from 10.3 in the third quarter — the highest since at least 1983.

DMZ thinks estate agents are suffering from a crippling shortage of stock to shift, while the sellers’ price expectations are increasingly unrealistic in today’s market.

Additionally, as well as contending with fewer deals, brokers are having to compete with new digital brokers such as Purplebricks who continue to undercut traditional estate agents pricing structures. The combination of the online challenge and the stifling sales environment is making it very hard for traditional real estate brokers.  Countrywide has introduced digital sales in about a quarter of branches; time will tell if this will reverse the loss in profits.

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