UBS is wrong on Purplebricks & are letting agents at peak greed?

I disagree on negative Purplebricks and positivity of online-only from UBS

UBS released a report with the main themes of growth of online-only vs traditional and negative on Purplebricks on valuation. I think they’re wrong on both. The top 8 online-onlys bleed cash and are neither new nor in growth phase. It’s the hybrid model that’s succeeding and, yes, I expect that to make inroads against traditionals. It’s negative Purplebricks is based on valuation (citing 18x EV/sales) arguing scalability is impacted as licensees are self-employed and many staff will want to be employees not self-employed. I think that misses the point of sub-licensees. The main licensee/LPE holds the rights to act for PB in defined postcodes. They also have the right to hire “sub-LPE”s ie PB is looking to attract branch managers as licensees who will then attract additional staff. That drives the scalability and again makes PB look like a traditional service just much slicker, more transparent (especially in price negotiation) and with a much lower cost base. I expect Purplebricks to launch in other territories soon, too, my top pick being USA. UBS is also positive on Foxtons as it opens 5-7 new branches per year. Ok but given the arguments hybrid taking share from traditional agents, Foxtons will need to come up with an answer at some point or see its business eventually taken away from it. I’d be more cautious.


Are we getting to “peak greed” on agent fees? Industry risks regulation

Anecdotally but visibly, letting agents are being innovative in the fees they are charging tenants. For example, credit checks cost £25 from Experian but £100+ from the agents, the same for inventories. Agents are now charging for references from historical tenants ie when the letting agent handling a house you’ve agreed to rent wants to check with the letting agent of previous houses you’ve rented that you paid the rent, the previous agents want a fee for looking up the records. In London I’ve heard £150+VAT (clearly a qualified lawyer is pulling the records and taking an hour to do it). To me we’re getting near “maximum greed” with these fees and the industry is risking both regulation and disruption from hybrid agents. Regulation of these type of fees are unlikely to be passed on to tenants as higher rents – the argument against banning most agent fees – and once one fee is regulated the gates are open. Linked to this, the Home Affairs Committee has called for “much stronger” supervision of estate agents. The main aim is to tackle money laundering – but calls for regulation are growing and it’s hard to argue against. Changes to regulation tend to favour the large letting agent networks like Belvoir (who don’t currently charge all the fees). Landlords flock to the expertise offered to navigate new regulations.


House of Lords calls for 300,000 new homes per year

The House of Lords Economic Affairs Committee released a report this morning strongly criticising the government over its housing policies. One remedy demanded is for the Government to lift its housing target by 50% to 300,000 new homes per year. That’s all well and good but it’s been done before with little increased housebuilding in the UK. It will take some radical policies to achieve it. The report goes down the route of local government and housing associations getting back into the business of building. Remember the last time we built 300,000 houses a year (late 1970s), the public sector was building over 100,000 of those and last year it managed 4,000 so it would imply there’s some sense to it but it’s a thorny issue. The industry warns that councils of old built the sink and problem estates and it would risks a return of social problems. It is one more high profile call for more housebuilding and Theresa May has also said more housebuilding is her preferred solution to high house prices.


London prime: healthier than the commentary?

Some conflicting numbers of prime London this morning. The Buying Solution, the independent buying consultancy of Knight Frank, said the number of active buyers per available property in prime London fell to 5.9 in the year to April 2016 from 11.9 over the same period in 2015 but viewing increased by 42%. Not so prime country where both viewings (+20%) and buyer enquiries (+9%) are up. The head of The Buying Solution also noted prices have come off as its sellers who are having to pay higher transaction costs. I think that’s an important point- a buyer of a £5m house will pay £150k more tax this year than last. That’s being taken off the price of the house so while reported sales prices are dropping the amount actually spent by buyers is more similar.

I’ve got Purplebricks coming to value renting out my home in London over the weekend. I’ll report anecdotal impressions of that next week.

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