Foxtons Warn of Property Market Downturn

Share price tumbles as City turns bearish on estate agent's prospects

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Chiswick based estate agent Foxtons saw their share price fall further this week despite reporting increased profits and announcing a special dividend.

Foxtons saw revenue increase by 16.2% to £72.8 million in the first half of this year and earnings per share was up by 48.6%. The company said that due to high levels of cash generation they will be able to pay out an interim dividend and a special interim dividend equal to a total payment of £12.8million.

The results failed to stem the fall in the share price which has tumbled from a high of over £4.00 to £2.53 close to the price it was listed at last year.

Part of the fall could be explained by the note of caution sounded in the company's trading statement. Nic Budden, Chief Executive Officer said: “Looking ahead to the second half, we expect the growth in transaction volumes to slow from the rapid rate seen in the first half as the policy
initiatives introduced in 2014 aimed at controlling mortgage lending, together with the expectation of increases in interest rates, are now having an impact on short term demand among buyers."

Former employee of Foxtons and now managing director of Oliver Finn estate agents, Christian Harper gives credit to Foxtons for dragging the estate agency business into the 21st century with its use of technology but thinks its relatively high commission rates will continued to be squeezed by competition and that its market share will fall further particularly in Chiswick.

He said, “Back in my days Foxtons Chiswick dominated the W4 market and took the lion's share of high and low value property. This is certainly not the case now as more and more agents plague Turnham Green Terrace taking a slice of the ‘fat cat’ pie as the old message of ‘Foxtons will get you more money for your property’ has died a death due to the internet. As 98% of buyers and tenants begin searching for property via Rightmove or Zoopla more and more clients realise that paying Foxtons 2.5% to sell a property is not always required."

Nash Cohen, manager of Faron Sutaria's Turnham Green branch said, “Foxtons are a heavily capitalized group, with a full arsenal of tools – all valuable when operating in the prime residential market, but the sheer size of their workforce, infrastructure and resulting cost structure, coupled with the fact that other agents have made up ground on Foxtons’ market share mean that in a less bullish economy they will always be at risk to reduced profitability. It’s the nature of the beast.”

Christian Harper agrees saying, "I expect that in five years time the levels of profit will be much, much lower as the public become more informed about other methods of selling or letting that will put the money in their pockets and not in the pockets of estate agents shareholders.”

Despite the cautious note sounded by Foxtons and other agents, they have continued to expand opening five new branches in the first half of the year with further expansion planned during the rest of this year.

August 31, 2014