Upmarket, London-only estate agent Foxtons is blaming the EU referendum for a terrible start to 2016 and warning investors that the capital’s property market is unlikely to improve before the end of the year.
Foxtons’ half-year results on Friday show a fall in revenue, earnings, margins, and profit. Here are the key numbers:
- Revenue £68.8 million, down from £71.1 million in the first half of last year;
- Pre-tax profit down 42.2% on H1 2015 to £10.5 million;
- Earnings before interest, tax, and other deductibles of £13.1 million, compared to £20.5 million in H1 2015;
- Earnings margin of 19.1%, down from 28.9% in the same period last year.
CEO Nic Budden says in a statement: “Uncertainty surrounding the EU referendum led to slow residential property markets in London during the first half of the year.
“Although we achieved a Q1 revenue record due to a surge in property sales transactions in March ahead of the introduction of the stamp duty premium for buy to let properties and second homes, Q2 experienced a sharp contraction and we believe that the overall level of property sales transactions made in London during the first half of the year is substantially down on last year.
“The result of the referendum to leave Europe is likely to lead to a prolonged period of further uncertainty and we do not expect London residential property sales markets to show signs of recovery before the end of the year.”
Foxtons focuses on London, beginning as a central London agency but gradually moving further out to suburbs. Central London’s property market has been flying in recent years but is expected to take a big hit from the UK’s surprise Brexit vote. Stockbroker finnCap recently predicted that house prices in inner London could fall by as much as much as 20%.
Another stockbroker, Peel Hunt, also said in a recent note that it expects: “rental growth to disappear or even reverse and expect London property valuations to fall by around 5-10%,” although its note was focusing mainly on commercial property.
Budden says Foxtons is “reviewing the pace of our branch openings over the short-term and may slow the pace of expansion in response to market conditions.”
But he adds: “However, longer term, whilst recent political events have produced uncertainty for buyers and sellers, we expect London to remain a highly attractive property market for sales and lettings and we remain committed to our goal to reach 100 branches across greater London.”
Upmarket estate agent Knight Frank recently said that prices in “prime” central London areas fell by 0.2% in June and rents fell by 3%. However, Knight Frank says that the number of sales in prime London was up by 38% in the week after the referendum and 29% higher than the final week of May, suggesting the slump may be short-lived.
Foxtons made marginally more per sale in the first half of 2016 compared to last year — £13,522 against £13,057 — but the number of sales tanked by 10.2% to 2,314.
It was the same story with the rental business with average revenue from rents up 9.9% to £3,573 but an 11.5% fall in the number of properties let out.
The UK’s property sector has been hit particularly hard by Britain’s surprise decision to vote to leave the European Union on June 23. Property funds that hold £15 billion-worth of British commercial buildings were forced to freeze withdrawals after being overwhelmed by customers trying to pull money out of the sector.
Property stocks have also been slammed, as the graph from Peel Hunt below shows: