10/06/2008

Published in Business Money, on 10th June 2008

Have years of optimistic selling come home to roost and made prospects for estate agents even starker in the present economic climate? Bonnie Yuill went to find out whether we need to have a whip round for them

The credit crunch continues to blight the housing market, causing great difficulty for both buyers and sellers. Hundreds of estate agents' branches are closing every week and many first-time buyers in particular are unable to get a mortgage.

Richard Hair, of Hair & Son and a past president of the National Association of Estate Agents, said that relaxing stamp duty and reintroducing tax relief on first time mortgages would be a sensible way to help first time buyers, and continued: "Doing that would not suddenly inflate the market but would be the soft touch of encouragement which it needs. Currently we're having a correction and these are usually linked in with generally high inflation, often high employment and sharply rising interest rates - but we've had none of these. When we had the last correction, my residential sales was 50% of my business, now it's 40% because other parts of the business have grown very well so I think I will be able to weather the storm, but there's a lot of very good estate agents who are finding it very difficult at the moment. The projections this year are that the number of transactions is down."

In the short term, confidence in the market is clearly having an effect on prices as all but a handful of lenders have pulled out of offering 100% mortgages - and the cost of repayments has shot up despite the government urging lenders to pass on recent interest rate cuts.

"Recent injections of liquidity into the banking system have yet to find their way to those seeking mortgages," commented Robert Bartlett, CEO of Chesterton. "Higher priced mortgages and greater caution from the banks is now having a negative effect on house prices. This scenario is likely to remain whilst banks repair their balance sheets and until interest rates drop significantly. There are, however, great opportunities for cash rich buyers in all sections of the market which is reflected in the stronger growth rates in some areas of central London. Cash is king and those with a surplus are already snapping up property'

BUT clearly not all property is equally desirable. Michael Jones of Michael Jones & Co Estate Agents Ltd identified one increasing problem area: "Locally, we have, of course, the development of apartments in Cardiff Bay, an area not getting demand because of oversupply. It's a struggle to let and very difficult to sell and, I'm being told, it's exactly the same picture in Manchester, Leeds and other places where there have been large scale development of apartments. Consent has actually been given for a further 9,500 apartments to be built in Cardiff Bay - who is going to buy them I don't know."

In the City, wealth-creating companies wanting to move into the West End have the opposite problem and are being forced to pay very high premiums for office space, according to Robert Leigh, founder and director of Devono Property. He said:

A significant proportion of the property coming on to the market is high spec, prime location, high rent, premium property vacated by tenants!

Companies, including a number of prominent hedge funds currently occupying executive West End office space, have either closed down or have been forced out of the area, leaving many expensively refurbished offices. The area is still maintaining high rental rates despite falling rents in the City and other UK city centres.

Prospective tenants have no choice but to pay these large cash premiums up-front because demand for West End office space still heavily outweighs supply. They have to pay or not move at all. This could cost the average company moving into the West End anything between £20,000 to £2m up-front, based on the circumstances of the lease.

But in spite of uncertain times coupled with mortgage lenders tightening their lending criteria, the astute small businessman will find a way to prevail. Damian Bellusci co-founder of Less2sell Online Estate Agent, commented: ''All of our local traditional agents are feeling the squeeze as property movement slows. If you take the home section of our local paper, the Lancashire Evening Telegraph, three months ago this was typically 20+ pages but last night's edition had eight pages. However, we currently have over 60 properties compared to just 15 two months ago and regardless of how many properties we turn over, our overheads are minimal compared to our competitors. To keep everything in context, though, house prices ere still approximately 5% higher than they were in 2006!"

Canny estate agents agree that long-term prospects are good as long as they hold their nerve.

"Generally the property market quite happily outperforms stocks, shares or anything else you might like to look at," argued Richard hair. "In the UK, we all want to own our own home. The Barker report said 18 months ago that we're building 200,000 houses per year less than we actually need to meet demand, so long term I don't think we've got any issues. This is not a property-related problem and there are signs that the market is improving. Overall, estate agents don't really mind if prices go up or down - yes we earn a slightly bigger fee when prices go up but it doesn't always affect us too much."

Michael Jones, another past president the National Association of Estate Agents, is also optimistic. "In 12 months' time, once the lenders sort themselves out and funds from savers are available, there will be pent up demand - people will hold back until they feel the market has got to the bottom and then they'll all come piling in and force the prices up again because there'll be a mad scramble for property." Currently he notes that the rental market is very strong in the south Wales area and investors are seeking repossessions, both of which are keeping the market going.

"The confidence will never go out of bricks and mortar - I've been an estate agent for four decades and people have got to live somewhere."