Source : Business Times - 9 Sep 2008
AS the British housing market continues to tumble, profits at property firms are taking a hit and fear of estate agent layoffs is mounting as the country teeters on the brink of recession.
A slump in mortgage lending and falling house prices are taking a toll on estate agents around the country, with entire sales departments rendered virtually redundant as transactions all but dry up.
Property adviser and estate agency Savills recently announced a slump in profits, with its global residential and commercial sales arm suffering an 88 per cent drop. The biggest contributor to this decline was the UK market.
In the six months to the end of June, profits from its sales division fell to £2.5 million (S$6.3 million), down from £20.9 million the previous year.
CB Richard Ellis in July reported an 88 per cent drop in net profit in the second quarter of 2007 to £8.3 million, while Jones Lang LaSalle suffered a 69 per cent drop in profits to £12.2 million.
At estate agents Foxtons, special advisers from NM Rothschild have been brought in to conduct a review of the business.
Private equity group BC Partners bought the firm in May 2007 for £390 million from founder Jon Hunt at the height of the market. Saddled with debt from the acquisition, attempts are now underway to tackle the burden.
Closures at other firms are meanwhile already taking place: HBOC in August announced plans to close more than 25 per cent of its Halifax estate agencies.
A total of 53 branches are to be closed as a result of the housing market downturn, leading to 100 job cuts. One of the UK’s oldest firms, Humberts, was put into administration in June this year.
As the credit crunch continues to curtail lending, the market for residential and commercial sales has virtually ground to a halt in the UK. One property analyst stressed: ‘I think it’s almost certain we will see future agency failures. It’s not inconceivable we will see some of the smaller ones disappear.’
A report by Savills this week painted a gloomy outlook for the property market, with an estimated 1.3 million homeowners likely to face negative equity if house prices continue to drop. It has forecast that house prices will fall by 25 per cent this year alone.
According to Britain’s biggest mortgage lender Halifax, property prices fell at an annualised 12.7 per cent in August, while rival Nationwide Building Society has put the annual decline of prices at 10.5 per cent.
Ed Stansfield, property economist at Capital Economics, believes the bad news has years to run. The market would likely hit bottom within the next two or three years, he said.
‘At this moment in time, the 4th quarter of 2010 or the first quarter of 2011 is where we see the trough,’ he explained.
‘There’s growing concerns about the wider economic outlook, which is a wider factor. Consumer confidence is back to levels seen in the early stages of the last recession.’
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