|This will be another challenging year for the residential property industry as changes in legislation, taxation and the political landscape will all continue to impact with associated knock-on effects in the economy and market confidence.
The pace of change in new technologies and business models will also continue apace and grow in influence with both consumers and those who serve them.
I believe we will see much more “blood on the carpet” where agents have been too slow or unable to change, in a market where transactional volumes are unlikely to be significantly different to 2016.
The growing impact of the portals and online agents hurting margins will have the most effect on “traditional” agents who fail to differentiate and justify their higher fees.
The growth of the internet and the portals has seen the number of people contacting agents diminish and the stage at which they contact agents become delayed, and yet agents still, in the main, do little to capture the customer earlier and staff are often “order takers” rather than proactive business generators.
Selling and buying, letting and renting, is still a people business, and yet I feel that the quality of communication offered by many agents is well below what it could be and, if faced with an online execution-only service at a fraction of the fee, agents should ask themselves whether they are really doing enough to justify to their clients a significant fee differential if the client cannot differentiate between the services being offered.
The introduction of the 4th Money Laundering Directive in June will also impact the market by imposing greater responsibilities on agents in terms of vigilance and the need to ascertain the identities of all parties and the source of funding.
The directive will almost certainly bring lettings officially under the umbrella of Money Laundering Regulations which it is currently not. This will come into line with Consumer Protection Regulations which cover both sales and lettings and will pave the way for revisions to the Estate Agent Act 1979 which currently only covers sales and buying agents.
Ultimately this will remove the current ludicrous position of a sales agent committing a heinous crime in the morning, being banned for life from acting as an estate agent at lunchtime under the Estate Agents Act, and then opening as a lettings agent in the afternoon. This has always been a nonsense, and the sooner this anomaly is removed the better.
The Government is currently reviewing the housing market and it is only to be hoped that the professional bodies, who were caught completely flat-footed by the Chancellor’s recent announcement on tenant fees, do a better job of representing both consumers and the industry through the course of consultations.
The lettings market will be interesting with tax changes, etc, likely to see some highly geared individual landlords starting to bale out – the Government will be pleased to see more owner-occupation and has a clear political agenda to bring this about. We have already seen a significant reduction in new buy-to-let purchases since the additional 3% Stamp Duty was imposed last April.
Whilst there may be an increase in Limited Company purchases and Build to Rent, I can see overall growth in the private rental sector slowing or even going into reverse.
Letting agents were dismayed (or worse) at the Chancellor’s announcement in the autumn statement that tenant fees were to be abolished.
Despite the Government announcing the outcome first, this should soon go out for consultation and may see some watering down of the blanket ban suggested. We are probably some 18 months away from any change but one thing is for certain: it will either be a ban or a significant reduction in this source of income which I currently estimate to be around 15% of new fees in most letting agencies.
Many letting agents have, in recent years, been growing their businesses, often by “buying in” landlords with cheap fee propositions whilst topping up their coffers with fees from tenants and ancillaries. Agents are going to have to better justify higher fees to landlords and also look at new income streams such as deposit replacement insurance, rent guarantee insurance, telecom and utility switching etc if they want to maintain margins.
I expect a number of letting agents to take “first mover” advantage over their competitors in the coming months by creating “tenant fee free” propositions ahead of any changes imposed with a view to capturing a greater slice of the market.
I expect the auction market to grow slightly and also greater numbers of sales to take place through online “auctions” that combine the best competitive and certainty aspects of an auction with the flexibility of private treaty sales. These arrangements are a great example of how an agent can differentiate themselves in their local market.
To conclude, I believe the market will certainly be challenging, particularly if uncertainty grows as Brexit plans develop. Inflation is likely to increase which may impact on interest rates, but these are at such a low base that change is likely to be minimal.
There will, of course, still be a market for those who have a clear business plan that looks to embrace change and differentiate, and where the consumer is at the very heart of everything they do. Staff development will also be key, both to ensure delivery of quality service and performance but also to help retain good people.
* Michael Day is managing director of Integra Property Services, a consultancy for the property industry. He is also a director of traceWise who provide property owner data for agents and online ID checks for money laundering compliance.